I get a lot of questions from clients about blog posts and how categories and keywords relate when I am designing their WordPress website / blog. What are categories? Which should I use?? Do I have to use them at all??? Here is a handy-dandy article from Michael Martine @ Remarkablogger that nicely spells it out:
http://remarkablogger.com/2008/10/27/blog-pages-posts-categories-and-tags-help/