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Vocabularies help us to organise our category terms.
Vocabularies are a collections of words - or Terms as they are called in Drupal - that we use to organise content of a similar type.
Categories are synonymous with Terms. In other words if I create the term 'Red' then Red is a category I can put content into. You will get used to this when you start creating your taxonomic system.
Example of a vocabulary use
We might create the following terms to categorise car engine size
We can collect these terms into a vocabulary called Cars along with many other terms we associate with cars.
We can create another vocabulary called Books and put the following terms into it
And of course we can add a lot of other terms as well.
If your site is mainly of one type of content or your users are a well defined group, then use one vocabulary for your taxonomic system.
If your content or your audience is more diverse, then use more vocabularies. Using more taxonomies gives you greater flexibility when it comes to using modules such as Views. However too many can become administratively unwieldy.
Some modules automatically create their own vocabularies. These include
You dont have to use these at all. You can always re-create these as part of your main vocabulary.