Right click on any item in a Microsoft Outlook view (the one in the thumbnail below is the By Category view in the Contacts folder) and then select “Categories” from the pop up menu.
The Categories window should now open. Click the Master Categories button on the lower right side of the Categories window (click thumbnail below for graphic). The Master Categories window will now open. Enter the name of the category you would like to add to the Master Categories list and then click the Add button. Click the OK button when you are finished and the Master Categories window will close.
The new categories you have added should appear in the Categories window. To assign the new category to an Outlook item, select that item, right click and select Categories from the pop up menu. Click on the check box to the left of the new category and it will now apply to the selected item. You can select multiple items to assign to a contact with this method at all. When multiple items are selected, you will get a warning message alerting you to the fact that the category changes will apply to all selected records.
To add records from existing categories to your new category, go the the By Category view and find the existing category you want to add record from. Make sure that category group is expanded and then select all the contacts in that group. With all of those contacts selected, right click and select Categories from the pop up menu. Now you can select the new category in the Categories window and it will be assigned to all the selected items. If you want to replace the existing category, simply uncheck that existing category in the Categories window. You can remove that existing category from the Master Category List by clicking on the Master Category List button, selecting the existing category and then clicking the delete button.