Please help me understand Categories within Verity search (CF8)

I'm not sure why I can't understand how categories work within Verity, but the documentation isn't helping much, and web searches are yielding anything either.

Here's what I'm doing; I have a folder that contains a few subfolders...in these are PDF files.  I have a collection setup that recursively indexed all documents, and allows me to search for them, no problem.  This works.

What I'd like to do is create categories in this collection that correspond to the folders the files are in.  For example, the structure could be:

Main Folder

   -Folder 1

   -Folder 2

   -Folder 3

      -Folder A

      -Folder B

So the category names would be Folder 1, Folder 2, Folder 3, etc.

So when I search, I can allow the users to select checkboxes to search only certain categories.

My question is, how do I do this when I re-index the collection?  Am I going to be forced to create a separate collection for EVERY category and subcategory? And then search multiple collections when using CFSEARCH?

Very confused, thanks in advance for any help

T