Shop categories can be found under the Categories heading within the Shop control panel.
Each category can be a container for products and other categories. This allows a heirarchy of categories to be created. By default, every category inherits products from child categories.
Within the admin panel you can browse up/down the category tree. Ordering of categories is by priority (lowest first), then name.
The Move Up/Move Down buttons allow you to adjust the priority of the category.
Within the category editor, you can set a category description. This description appears at the top of the category before the products on all product pages so it should be kept short and snappy, but at the same provide help your customer understand your products.