Go to the module that contains the list of blogs.  It's the same one that gave you the option to create your blog.  From the module menu select "edit blog settings" This will bring up the settings page.

At top of the page there is a text box Title.  The name in the box is the title of the blog you are adding categories or childeren to.  It's the Parent blog.  At the bottom of the page there is a bigger text box and three buttons to the right side of it.  Click the add button.

This brings up another screen that you need to fill out with the details of the category. Fill it out as you want and click update and you will be taken back to the previous screen. Click cancle and you are back to the main page with your new category ready to be used.