Categories are groups of items that you’d like to showcase on your storefront (for example, Women’s Bags, Men's Shirts, Sneakers etc.). These will help your customers navigate your online store to find exactly what they need. Under the product drop-down menu, select categories to create the various categories you want.
Adding a product to a collection is not compulsory but it does make for some nice aesthetic options when designing your storefront. Collections can be easily featured in your store and discounts can be applied to each collection as a whole.