To create a space category, go to the Space Tools and select "Overview". In the categories click on Edit and add your categories. You can add categories by either clicking on the suggesting below entry field or simply write your category name into the entry field. Click on Add to add the category to your list. Once you're done, don't forget to click on Done to save the categories!
What can I do with a space category?
You can use the space category to create menus that will be only visible in this specific space category.