Categories are those small square colored icons on the Photo frames,

Categories are used in a case that you need some sort of indication for what state the photo is in.

For example: When you have finished editing a photo, you can add a category of 'Edited', If you have shared this photo then you can ad a 'Shared' category to it, and so on,

This way you can visually see in what state this image is in.

You can add up to 4 different categories to each photo, and edit the Categories names.