Categories, under Content → Categories, group your posts. Below about twenty articles they barely matter. Past that they are the difference between a blog someone can navigate and a reverse-chronological list nobody scrolls.
Creating one
Name and slug. The slug becomes part of the category's URL, so the same rule as everywhere else: choose it once, deliberately, because changing it breaks existing links.
How many
Fewer than feels natural. Five to eight covers almost any small business blog.
The failure mode is a category with one post in it. A category page listing a single article is a worse experience than no category at all, and if you are writing enough to fill twenty categories you would need hundreds of posts to make each one useful.
A reasonable test: would a visitor click this category expecting to find several things worth reading? If not, fold it into a broader one.
The mistake that costs you search traffic. Creating categories that describe the same topic in different words — "Google Ads", "PPC", "Paid Search" — splits your own content across three thin pages that all compete for the same searches. Google then has to pick between them, and frequently picks badly or ranks none of them. One category per genuine topic, always.
Categories and tags are not the same job
A category is where a post lives — one per post, part of the structure. Tags describe what a post is about and a post can carry several.
If you find yourself wanting a post in three categories, that usually means your categories are too narrow rather than that the post needs three homes.
Assign one before publishing
An uncategorised post is reachable by direct link and by nothing else — it will not appear on any category page, which is how most people browse a blog after arriving from search.
This is the most common reason a post gets published and then gets no internal traffic at all: it exists, but nothing on the site links to it.
Renaming and deleting
Renaming the display name is safe. Changing the slug breaks the category's URL, same as any other slug.
Before deleting one, move its posts. An orphaned post does not disappear, but it stops being reachable through navigation — and finding it again means remembering it existed.