This video created by Dennison Wolfe takes a very indepth and detailed look at WordPress (WP) Catagories. Catagories are for posts only and allow you to organize related  content into a specific type.

This helps encourage visitors to explore  more of your content because they can find everything you have posted about a subject just by looking over the contents of your catagories.

The bonus here is the longer you are able to keep someone on your site the higher your site will rank on the search engines. Google and the other search engines use the amount of time visitors spend on average by visitors to help them determine how well your keywords match with your content. They figure the visitor is staying on the site because the  content is relevant to what was searched for.