You can use any of the two, Mike.

The Category is part of your Chart of Accounts. This method allows all transactions to be categorize and affect automatically on your books. Though, the same as Class and Location tracking, there is also a limitation with category. We can add up to 250 accounts in Simple Start, Essentials, and Plus. 

You'll want to upgrade to QuickBooks Online Advanced. This version has no limits for Chart of accounts (categories), Classes and Locations. Here's an article for your reference: Usage limits in QuickBooks Online.

Please read this guide about Projects in QuickBooks Online.