Categories and Attributes are both assigned to products, and both act as classifications. You can assign multiple categories and attributes to each product.
A Category is hierarchical. This means it has a set path such as Shirts > LadiesWear > T-Shirts. Once you assign the product here, the only way to find it is to follow the correct path. It may seem like this limits where a product displays, you can add multiple categories to a product.
You can change your product categories en masse by CSV import, or individually through the Product Editor. You manage the actual categories with the Category Editor found under the Catalog menu. You can add descriptions/images/custom html content on the Category Editor page.
An Attribute differs by not locked down to one exact path. When you assign attributes to a product, you tie in anything that will logically describe it. The listing screen on your site will have an area to allow the customer to drill down into the catalog. They will leave something of a breadcrumb trail as they go. In the category example above, the user must select Shirts, then LadiesWear, and finally T-shirts in that order. With attributes tied to the product instead of categories, the customer can choose Shirts followed by LadiesWear then T-Shirts and reach the same product.
Think of attributes as a "pre-defined" search. They cover any detail related to the product from color to style, price and size range, and so on. This option puts more control in the hands of the user.
Enter the attributes and attribute groups using the Product Attribute Editor in the Catalog menu. Once attributes are in the system, you can assign them to products on the Product Editor. In the Product Editor, click on Category and follow the Product Attributes link. You will need to add the Attribute SnapIn to the list page you want it to show up on and style the SnapIn accordingly. There are many different styling options like dropdown boxes and free-flowing link lists.
