Taxonomies create a hierarchy of keywords for easy visualization and searchability. Tags are organized by top-level categories and sub-categories within those top-level tags. To create your taxonomy, follow these steps. If you make a mistake, you can always rename a tag or, if worst comes to worst, delete it.
Create Top Level Tags / Categories
Go to Assets > Taxonomy or click the Taxonomy icon next to search bar
Click on it and select + Top Level Tag
Give it a name.
Click OK.
Create a New Taxonomy Subcategory
Go to the Taxonomy
Find the Category you want the Subcategory inside
Hover over it until the options appear on the right.
Click the plus icon.
Give it a name.
Click OK.
Tip: You can create as many subcategories as you need. Our example above has three levels of tags.