In the Magento 2 FAQ and Product Questions Extension, there are no limitations on creating categories and tags.

However, it's essential to maintain organization and avoid complicating your category structure.

Utilize categories effectively and tags to enhance navigation and SEO. Excessive categories or tags may confuse customers, impacting user experience and search visibility.

Read this How to Configure Product Question and FAQ Extension to Magento 2 to setup this extension.

Also, you can read this guide on How to Optimize FAQ Page of Magento eCommerce Website to help you get most out of your FAQ Page.