Think of categories as your contents page.

This is where people go to find a topic they may be interested in on your site. The easier it is for them to find things of interest the more likely they are to stay.

So this means creating relevant categories for your post.

So I am into Steampunk, my categories (which I have been developing on my new site) would be;

Steampunk Gadgets
Steampunk Events
Steampunk Movies/Books
Steampunk Travel
Steampunk Criteria

So these are main categories and there may be 10 posts under each category. But my subcategories would appeal to people who want more detail so under the main category I may have;

Steampunk Gadgets

Media Centres
Computers
Utilities

So you see how it now becomes more interesting for the reader?

Let's see how you create a subcategory in WordPress...