When you create Companies and Contacts, you will be able to assign Product Categories to them, if applicable.
While you can categorize any account by product, it will typically be most useful for Exhibitors and Suppliers.
Product Categories 1 and 2 are separate and unlinked lists. In other words, the categories under Product Category 2 are not sub-headings under categories of Product Category 1.
The separate lists allow you to keep the categories organized under shorter lists in whatever system you prefer. Also, the product categories are not mutually exclusive, so when choosing categories for an Account, you may select more than one category from both lists.