Inventory Categories are the top most level of your inventory system. You can have multiple layers of categories if you wish or you can create a single layer of Inventory Categories that have no child Inventory Categories. Inventory Category within the same parent category must be unique.
Here's where they fit in the structure (Inventory Categories are in bold)
As you can see, Inventory Categories take up the top most layer(s) of your inventory system. When adding Inventory Items into the system you assign them to an Inventory Category. You could technically assign Inventory Items to parent (top most) or child (bottom most) Inventory Categories, but we recommend only assigning Inventory Items to your bottom most Inventory Categories for better organization.
Here's another example of how a video game store might organize their inventory: (Inventory Categories are in bold)
In the above example the video game store chose to have a parent Inventory Category called "Console Games" and then subdivide those into console games for various gaming systems. For their "Accessories" parent Inventory Category they may choose to divide them like the following example: