Category vs. Group

Hello.

What does a Category do? I thought a Category was a Group, so I created a bunch of Categories. Turns out, a Category is not a Group. So I'm going to create a bunch of Groups. Here's the misunderstanding I have...

When I create a Group, one of the criteria I have to set is that Group's Category. Why?

If a Group is named, say, "Basketball Fans," would the Category then be Sports? If this is true, then why is there an Admin->Settings->Categories Settings?

Because, in Admin->Settings->Categories Settings, you set a list of Categories for Events, Files, Photos, Groups, and so on. But why? Where else in the site does any of these settings ever show up? For instance, if I go to Admin->Settings->Categories Settings and set a Events to a single Category called "Purple People Eaters," and I set one Category for Files to "Purple People Eaters," and I do that for the others, will it ever make a difference anywhere? Perhaps I am missing something here.

How does these lists of Categories impact the creation of Groups?

Is there supposed to be a Menu item called Categories?

Thank you all for your replies!

Categories are for searching.  So you could have a Category of Sports.  There is a mod in the market that will allow sub categories.  With that mod, you have Sports as the main, then you can have football, basketball, etc as a sub category.  It makes it easier for search for Groups since you can say you want to search for all Groups that deal with Sports and not Gardening, or Knitting.

using your example of basketball fans as a group - you could put that into the category of basketball. Then you could have another group called basketball coaches with a category also of basketball. so, if someone was looking up basketball, they would see groups such as fans or coaches.

you could also have another group called track fans - with the category of track, and it would allow users to search a little better. so, if i am interested in groups related to basketball (the category) then i would see fans and coaches for basketball. and the same for track.

its like going to the grocery store - you have a main category such as household, but within household you have toiletries, cleaning, and so on - which would be your groups. or you could have a category such as frozen foods, and groups would be breakfast, dinner, veggies, and so on.