A Catalog can store single image files, Projects, Albums, Smart Albums, and Groups.
Groups. A group can contain other groups, projects, albums, etc. - it is the simplest way to group items. A Smart Album located within a group searches for the files located outside the group. (A Project will limit the search scope of, for example, smart albums within it and cannot contain other projects).
Albums. Put an image into several albums without creating copies or using more hard disk space. This saves hard disk space and ensures easier organization. Editing an image in one album will, of course, be reflected in all other albums which contain the same image.
Smart Albums. Those are similar to Albums, however, the images are added automatically there based on the correspondence to the search criteria you set.
Projects. Group your albums into projects, search and filter images within a project. A project will limit the search scope of, for example, Smart Albums within it. A project cannot contain other projects.
Organize your images into albums, your albums into projects, and your projects into groups. It is easy to drag and drop images between collections within different projects.