To add a category to your top level content, go to Knowledge Base > Articles and if it's your first category, click on the 'Add Your First Category' button. If you have existing categories, click on the 'Add Category' button in the First Level Content column on the left for a new one.
You can choose between a variety of category types which change how the landing page, or URL, for the category is displayed. For more information on the different category types available, check this guide out.
Once you choose a category type, click on 'Quick Add' to create the category and return to Knowledge Base > Articles to add more content or click on 'Add and Edit' to go to the category editor and customize the category further.
To add a sub-category, first click on the top level category where you want to add the sub-category, click on 'Add Sub-Category' on the right, and continue the category creation process.