Navigation:
Manage > Categories > Remove Category
or
Inventory > Manage Categories > Remove Category

Remove
Category

Remove Category Name Only

This will remove the category name, and will
disassociate the items with this category. Category will be set to None for
items that only apear in this category. 

Remove Category Name and Items

This will remove the category name, and will delete
the items that only appear in this category. If items appear in more than one
category, then they will be disassociated with this category but will not be
deleted. 

Remove Items Only – Do not Remove
Category Names

This option allows you to delete all the items in a
particular category without deleting the category itself.