Greetings RobertBar!
If you have your links working, go to the admin page and it explains this issue. There are also lots of explanation you could find by doing a search under sub-categories.
In saying all that
If you have a category, let say "Computers" and you wanted to add a sub category under there, you would in the add category section in admin put "Computers/Hardware.
You can have two words like "Computers/Hardware_Chips. The"_" puts a space when printed on the page.
Hope that helps
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