Categories are meant for organizing your posts like a filing system. They are typically broad terms like “Recipes” or “DIY Projects”. These are your general topics that you write about. Typically you'll have a few of these.. maybe 10 of your primary categories. Don't get to specific with your Category titles like “ground beef”.. that is what tags are for below.
You can also do sub-categories where you have categories listed under a primary category. An example of this is “Recipes > Breakfast, Lunch, Dinner” Where breakfast, lunch, and dinner are all sub-categories of Recipes. This option doesn't have to be used, but if you need to break your categories down a bit further, this is how you'll do it.
Tags are for describing very specific details of your blog post. These are used to micro-categorize things. For example, you could use “ground beef” as a tag, and then anyone who wants to look at all posts that mention “ground beef” those can be found.