Located under Ecommerce/Products inside the Product Editor / Categories Section
Categories are a useful way to use the power of the database to create query lists of related content objects by category assignment.
In Products we use a Categories mainly as a way to create a Query List to populate web pages with lists of related products so for example you can have a store page dedicated to books, and a store page dedicated to CDs etc.
It can also help make it easier to more easily find your products in the Finders, especially if you have a large quantity of products.
Categories are optional and can be added later if needed.