Category info will be read from your text base and kept by the conduit. The desktop application will use this information and let you display the list of texts by category.
Category info is kept in each base, but it is up to the palm application to keep category names and use it. For that reason the conduit is not able to sync category names with the application you use on your device.
While scanning your text bases the conduit will add new categories found and name them with a generic name. You will then have to rename them, looking at the bases in it, with a more meaningful name. If you delete a category from the desktop application remember to remove it from your device or it will appear again on the next HotSync.
Some applications maintain category information on extra proprietary bases. Its impossible for the conduit to get that information.