To sort by Category, you have to first set the "Sort Transaction Item By" to "Category".
Then make a New Order and print an Order report.
BED-FITTED SHEET = Bed Room (Category)
BED STORAGE = Bed Room
LAMP-LIGHT BLUE = Bed Room
CAB OAK CABINET STEREO = Entertainment
You would notice that items in the Order report are properly sorted by Category. (Same case when you process the Order to Invoice and print the Invoice report)