Does anyone have some documentation on how to use 'Sites in Category' & 'Categories' Webparts
The webpart you are talking about is used in conjunction with a Site Directory. This is a leftover from 2007 and is pretty much discontinued in 2010.
In 2007, using a Site Directory you were able to submit sites to a site directory and assign a category to them, like Department, Region etc. This way you could group sites together.
The Site Definition for the Site Directory still exists, but is not visible in Central Admin in 2010 and wouldn;t work either without some hacking. It is only included for upgrade purposes (i.e. from 2007 to 2010).