Categories make sense, if you want to give the users a fixed structure to post their images/media in. Just like forums and subforums for messages.
Albums are better, if you prefer to let the users choose, how to organize their images. So they create albums for that, what they need.
Examples:
If you run a website for festivals, you could create categories for eg. specific festivals, for different kinds of festivals, different cities or countries.
Or you could let the users create their own albums for the events, they've visited. Just one would do on Facebook to post images of a specific event.
First is more structured and better for "blind" searching.
Second is more flexible, but is not good to search for eg. all festivals within a country.
Or you use both and you'll have a mixture. You won't be able to guide all users to either the one or the other, so you end having images of the same festival as well in the categories and some albums.
This suggestion is to have a fixed category structure, but not too detailed, to let the users have their own albums within those categories. So you have the best of both worlds. It's structured, good for blind searching and it's flexible enough to let the users create in it, what they need/want.
You can hide categories of you don't create them and
use this addon, which I've funded because I wanted to have a listing on gallery index just like PhotoPost has. It's far from being perfect but you can hide category block in sidebar.