I have the latest PHP Fusion and I was quite surprised that the option to have Subcategories isn't there for Downloads and Photogallery, Mainly because that option has been in e107 and a few other cms for a couple of years now.
If i have just simply missed how to do it then would someone guide me on how to? thanks.
No, this is not possible with the current PHPFusion version. If you want help to this you should head over to www.phpfusion-mods.com which is the official modification site!