Categories and subcategories are maintained under Service Catalog > Catalog Definitions > Maintain Categories.
Edit: the way it woks is that when you create a category and leave parent blank it is a category. If you give it a parent then it is a subcategory. When you on the field that is on you screenshot you want to put it in the lowest category.
Example:
Software
Software > Maintenance
Software > Access
Software > Enhancement
The above example is from my instance where software is the parent. If I create a new catalog item for access I could not put software in the field I would search for Access and the system would know that is a subcategory to software.
if you select any of the category you can see sub category in related list
based on the parent feild the drill down is can happen.
sc_category table
If my answer solved your issue, please mark my answer as ✅ Correct & ????Helpful.
Thanks
