Categories and Work Stages are similar but have distinct uses.
Categories are best used as a static field. Because your project can only contain a single category at any one time, and the changes are not tracked, you'll want to think of an immutable project characteristic to base it on. This might be the company department responsible for the project, for instance, your Categories might read as sales, marketing, development and support. Another option might be if your work can be categorised into a certain subtype, for instance, if you are a building company, it might be useful to know which of your projects are new builds, which are extensions, and which are renovations. If you are an accounting company, it might be useful to know which of your projects are bookkeeping, which are financial planning exercises, and which are for taxes.
Work Stages are best used to track Status or Phase type data, any kind of non-static state. This is largely because the tool keeps track of when the work stage changes. It is also because you can tie these stages to the project statuses, i.e. Active/Completed/Deleted. Your Work Stages might read as something like 'Phase One' through to 'Phase Five', or your company might name their project stages relative to the industry, e.g. Pending and In Progress might be the Active stages, Finished might be a Completed stage, and Terminated might be the Deleted stage.