Departments are incredibly useful for large stores with vast amounts of square footage and inventory. Users can organize their physical stores by departments to find items more quickly. Using designations such as "north-east corner" or "men's winter gear" can help you locate items quickly by finding their general location within the building.
You can create as many or as few segments as you would like and organize inventory as such. Keep in mind that items will need to have their department added to them when creating inventory. This preference menu is simply how to create the sections that you use.
To create and edit departments:
Navigate to the Preferences > Product section of the primary menu.
Click the Fields tab of that preference section.
You can add or delete any departments by typing their names into the field and pressing enter.
Give any departments you create a good name to help you manage your inventory.
Click "Save" when you're done.
There is no limit to how many departments you can create.
Keep in mind that this only creates the departments for you to use. You will have to designate your products to their department when editing or creating new inventory.
UPDATE: Departments used to be called "in-store locations" long term users may notice this change. There is no technical change to this. Just the verbiage.