What is the point of Categories in Outlook

You’ve identified a real limitation: categories help organise contacts in People, but they don’t automatically work as mailing lists or filters in the “To” picker.

If you regularly email the same group, a contact list in New Outlook/web, or a contact group in Classic Outlook, is more useful. You can address an email to that list by name. The catch is that its membership won’t automatically follow changes to your categories.

In Classic Outlook for Windows, there’s also a handy route: filter or group contacts by category in People, select the contacts, then choose Home > Communicate > E-mail. That starts the message from the selected contacts rather than using the “To” dialog.

The export limitation depends on the Outlook version and format—Classic Outlook’s CSV export can include Categories, while other export routes may omit them.

So categories aren’t pointless, but your expectation is reasonable: being able to filter by them in People and then losing that option when choosing recipients is an awkward gap.