Categories give structure to your shop and it should make the navigation of the site easier for your visitors.
To illustrate this, imagine yourself as a customer. You have just opened a webpage and you are greeted with a list of 500 products. Finding one product out of this list would be very difficult and you would likely look elsewhere. This is why we have categories, to give your customers an easy, efficient shopping experience.
Top Level Categories
Top level categories are those that the customer will be first greeted with when they visit your online shop. Think of these as the aisles you see in a supermarket, they give you an idea of what you're going to find on the shelves in that aisle.
This is what you'll see when you've clicked into the category. These are more like your shelves you'd find in the aisles, and allow the visitor to narrow down their selection and find what they're looking for.
Best practice when structuring your categories and subcategories, is to try and make sure that the customer can find the product that they're looking for in 3 clicks or less. So ideally they want to click Category > Sub Category > and land on the product page where they can then add it to the cart.