Categories allow creators of content to assign a subject to content. This functionality is often refered to as a taxonomy.
For readers of a site, categories have value: readers can drill down to just the section they want to read or subscribe to just one category using their aggregator when the Syndication is enabled on a site. At Urban Vancouver, a section of the site is called Neighbourhoods. Internally, the individual neighbourhoods are categories to which events, blog posts, forum posts and other content can be assigned. People living in the West End of Vancouver may only be interested in content that affects them, so they can bookmark the West End neighbourhood page or subscribe to the RSS feed for the neighbourhood.
Similarly, content producers for other sites can also use the category-level RSS feeds to syndicate content on another site. If a West End community site just wants West End information from Urban Vancouver, they can just syndicate that category's feed.
Taxonomy refers to the system in Drupal which administrators can determine to organize a site. A taxonomy contains vocabularies, which are groups of categories organized either flatly or hierarchically, and terms are the categories site users will use to tag or label content.
Categories come in three forms: 1) hierarchy-disabled, 2) single hierarchy, and 3) multiple hierarchy. The following image is from the screenshot of the Administer (top menu) » Content management » Categories » add vocabulary tab:
As mentioned earlier, specific node types can have categories available just to those node types. For instance, Forums require that a category be set up that recognizes the forum node type. These categories are used to create the structure, or categories, for your forums.
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