Categories allow you to break down the board into broad topics ("Cars, Sports"), and the "Boards" under them are the actual topics under which members can post. In the above example, a user interested in Pinto's would post a message under "Cars->Pinto". Categories allow people to quickly find what their interests are: Instead of a "Store" you have "Hardware" and "Clothing" stores you can go to. This simplifies your search for "joint compound" because you can go to the Hardware Store "category" instead of the Clothing Store (where you're unlikely to find pipe joint compound).
This brings up a simple editor for the HTML of your template code. The "template" (in your "cgi-bin/yabb" directory, as you set it up), defines the look-and-feel for your pages. It is an HTML-only file. You can modify the template here, or use some other HTML editing software to edit template.html to put the look and feel of your site on your forum!
Another random snippet