Categories serve two purposes in the Dashboard.
Category Permissions refer to the security of the dashboard and are a way of controlling what can be changed. On the Category Permissions page, you can specify what type of objects can be held in a category.
Categories can hold Charts, Data Connections, Objects, Filters, Reports and Schedules. By default, a category can hold any of these objects and all will be automatically selected for all new categories that you add. Unticking any of these options will prevent a user from adding new items of this type to the selected category.