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Make sure you are logged in as an administrator.
Go to Administer>Content Management>Categories>Add vocabulary.
Give you vocabulary a title.
Give your vocabulary a description.
Give your vocabulary some help text when adding terms to it.
Check any content types you wish to use with this vocabulary. This can be a useful way of restricting what users can do with the site.
When you add terms there are no parent-child relationships.
Example:
When you add terms there is a single level of parent-child relationship.
Example
Here you can have nested parent-child relationships.
Example
Don't check this . It is not a commonly used feature.
This allows terms to be typed into a field, rather than be presented as a pick list of fixed terms. It is useful for adding terms 'on-the-fly'. It is very useful if you have chosen Disabled for your hierarchy. The Tagadelic module requires a vocabulary set up like this.
This allows you to allocate content to more than one term by using Ctrl-Click. For example you might have an item on Brie cheese that you want to allocate to the terms Soft Cheeses and France.
This forces the author to allocate content to one or more of the vocabulary terms.