The difference is understandably confusing, but both option work and have differences. There are two different fields:

Category

The "category" (singular) field is for attributing content to a single category. So, a Post for example can only belong to one "category". This is useful if you're organising posts into distinct, folder-like sections.

Categories

The "categories" (plural) field is for attributing content to multiple categories. Say, a Post can be linked to a few categories, and will show up in the browsing in those categories. Multiple categories can be useful for organising content that can belong to more than one section.

Note, that the data sets for Category and for Categories fields are independent of each other. In most cases you are ment to use only one of those fields, but if you choose to use both fields for same content type it would be critical to rename at least one of them and make sure that semantic groups don't overlap. For example, you could use "Category" for something like post types: Tutorial, Announcement, Research Article, Press Release, Recipe, Guide, etc and name it "Type". And the "Categories" for, topic-like sections where a post can potentially be covering two or more at the same time: Wellbeing, Fitness, Cooking, Nutrition, Sports, etc. named as "Topics" . Then, a post could be associated with Type - Recipe, Topics - Cooking, Nutrition, Wellbeing.