Re : Not sure I understand the difference between Categories and Groups.
No difference. Just different terminology about the same subject.
RE : Have created a contact list which I'd like to divide into Family, Friends, and Business so I can -email to more or one person within those categories...or groups. How should I proceed?
You will create several Groups... one for Family, one for Friends, one for Business etc.
Once Groups are created, you can add the contacts into each group. You can have the same contact added to more than one group.
1. How to create Group :
Open outlook.com > place your cursor over the Outlook logo > a down arrow will appear > click it > select People > you are now in contact list window. They call it People.> click Manage at toolbar
> select Manage Groups > click the + sign > a box will appear > enter the NAME of the group > click Apply.
2. How to add contacts to the group you have created :
Still in People window > click a contact you want to be added to the group > if you have multiple contacts to add, click the box at top left of the contact > continue clicking the top left box of
each contact you want to add to the group until you are done> at the toolbar, click Groups > check the box in front of the group name > click Apply > all the contacts you have selected are now in the group.
Note : make sure you click squarely at the check box. If you click outside the box, all previous boxes you have checked will be nullified, and you’ll have to start all over.
***Repeat the above procedures for next group.