Admins can create Categories and/or Subcategories on the fly as they are adding or editing content by clicking the “Add New” button just below the Category or Subcategory drop-downs.   

In addition, you can view the categories/subcategories hierarchically and manage them by clicking the Categories tab at the top of the Content Library panel in Word.

More Information:

• See how to Add Library Content
• See how to Edit Library Content