Using New Outlook on Windows for personal email, calendar, and contact management
I've given up :(
I had one last call from Microsoft support today, we tried to fix the issue using specialist software from Github....no joy.
Apparently, Microsoft are pushing an update in June/July that will allow users to delete and amend existing categories.
Whether it will also make vanished categories re-appear is uncertain.
I'm adapting my workflow to cut all reliance on categories, and will check back in around July time to see if they found a fix, but by then I'm hoping I'll not have to use them again.