I have found it is easiest to look at other profiles with categories. I open their edit page and copy the code. I then insert it in the edit page of the new person and change the information.
You place categories to the top of the new person's profile, above Biography. When you hit save you will get a red error message saying "Warning: Check the data" at the top. Click on the save anyway on the right side of the warning. The change should now be saved.
Open the person's public profile. You should see a red hyperlink in the person's profile with the new category. Click on it and then you will see a 'preview' page for the category. In the edit box, you will need to enter the code for the larger category and then save it to complete the process. You can find similar code from the edit page of other categories. For example, when I clicked on the red hyperlink for Littlehampton, it took me to a preview page with a red warning saying this page is only a preview and has not been saved.
Littlehampton is a sub category of Sussex, so I went to the Sussex category page, and found a Sussex Places category. I click this and then saw this is where it should be located. I selected a town, opened its profile, and clicked on the edit link at the top right of the page. I then copied the line of code that said [[Category: Sussex, Places]].
I then go back to the open profile for Littlehampton and paste the code into the edit box. Then click save page. The category should work now. There should be a link from the person's profile to the category, a link on the category page to the person, and a link on the category page to the larger category.
I know this all sounds confusing. Remember you can always look at any profile using the edit link to see how something works.