An Objective Category is a division of a Collection into which Objectives (or other Objective Categories, called Sub-Categories) are entered. They are not required but can be helpful to associations that have a narrow collection of objectives that go fairly deep. Categories can have sub-categories, and sub-categories can also have sub-categories, allowing for very granular organization.
Visually you can distinguish between Categories/Sub-Categories and Objectives by the indenting (Objectives will be indented below their Category), as well as the icons along the right hand side. Categories/Sub-Categories have 4 icons whereas Objectives have only 2.