Categories give your users a way to group Outlook items. For example, your users might want to group together all tasks for a particular project so they can easily locate them for review.
You can assign categories to any type of Outlook item, including Contacts. Categorizing Contacts allows you to sort and organize contacts without creating separate folders. For example, if your users maintain both personal and business contacts, separating those contacts in "Personal" and "Business" categories enables users to easily organize those contacts so that they can work with only one category, if needed.
To set categories, right-click the contact and choose Categories. You can then select one or more categories for the contact and create new categories, if needed. You can also open a contact and click the contact form's Categories button to assign categories. To sort a view by category, choose View | Current View | By Category.
Categorizing Contacts using the "Personal" or "Business" designations is just one way to sort contacts. You could also assign project categories to Contacts to help you identify who's working on a particular project, or use categories to identify contacts in a particular company division or location.