Currently Blogger has no provision for doing categories, a very useful feature. If you want this, you will have to hack or do a work around. There are various ways, but I think this is the simplest:
1. If you don't already have a del.icio.us (close new window to get back to this page) account, create one. This methods uses del.icio.us tags. I already have one but I created another account specifically for this purpose. This is highly recommended. (If you are not familiar with del.icio.us, go to Introduction to Del.icio.us (click "Back" button to get back to this page)
2. Go to the post page for the post you want to tag and tag it. If you are unfamiliar with how to do these, click this link: Introduction to Del.icio.us (Click "Back" button to get back to this page). On the top-right hand side of del.icio.us page click on the tag you just created, and on that page note the url. The easiest way to do this is to highlight the url on the address bar and copy it. An alternative way to do it is to right-click on the tag and select "Save link as..." (this is for FireFox. For other browsers, the wordings will be different).
3. Log into Dashboard, select the relevant blog for which you want to create categories and click the TEMPLATE tab.
4. Creat a new "paragraph" or "links" in the sidebar by adding the codes you see in the screenshot below into the template where you want the "Categories" to be.
You will have to modify the url and the "description" to suit your own circumstances, for example, changing
<a href="tag url">tag description</a><br />
5. Change the url and "description" of each tag you have for your "categories"
6. Repeat for the other categories you want to add. Add more links if you have more than mine shown in the screenshot, delete the excess if you have less.
7. Preview the changes (by clicking the PREVIEW tab on the template editor to make sure this is what you want. Make corrections otherwise.
8. Save the template and republish.
9. Surf to each posts and tag them with one or more categories.
10. A reminder. It is always a wise move to save the template before you make any modifications to it.
To familiarise yourself with how the system works, why not try it by clicking on some of the categories at the top of the sidebar.
P.S. Got the idea for this from this website.
For other more complicated ideas on how to do categories for Blogger, go to Fresh Tags, Blogger categories with del.icio.us, Freshblog, Labelr.
Books from AmazonPublishing a Blog with Blogger: Visual QuickProject Guide