Categories and attributes are two different ways of grouping inventory items.

Item variant is a way to indicate that a specific item is available in different colors or sizes, for example.

Depending on how you set up your inventory, you can use categories to group chairs versus desks, and then use attributes to group green items versus blue items, for example. You can then supplement this setup by adding variants to each type of chair and desk.

By adding variants, you can run reports such as Item Availability by Variant to identify differences between the blue chairs versus the green chairs, for example.

Source: https://learn.microsoft.com/en-us/dynamics365/business-central/inventory-how-categorize-items?wt.mc_id=DX-MVP-5004336#categories-attributes-and-variants