The .7 news module had it's own categories - there were hacks that added subcategories to it. And there were hacks that added subsection to the sections module aso.
Every module had to have it's own categories. But implementing a system of unlimited subcategories is not a too easy task - that is why many modules didn't have subcategories. I always depended on the coding skill of the module developer.
The .8 categories module will solve this problem. It is most of all an internal categories system - the administration you see is only the interface. But do you want to first add a new category there and then add your article in the news administration? That is certainly not what you call usability.
The categories are supposed to be used by the module developers via the API - they can use it any way they want but they only have to throw the name of the new category into the db and won't have to care about the way it's stored there.
AFAIK the Quotes module is the only module that already uses the Category API. But Robert Gasch - the maintainer of the categories system - will write some documentation for module developers soon. There will also be some snippets includes that you can make fit for your modules.
How should the handling of the categories look like in your opinion? We need you "end user input" on that, so that Robert perhaps could make the snippets match your needs.