First of all, install the category component as normal. You will install a component called "Category" Which you can find the link for as a sub link to the Google Base component.

If you open this component by clicking on Categories, you will see a list of all your categories in your VirtueMart shop like this

At the moment, your "Google Category Name" will be empty, so you select the category by clicking on the category title or selecting the box besides the title and clicking on edit in the top right... both actions do the same thing. When you open the category, you will see this.

In here you need to enter the corresponding category that Google wants you to use. So visit

http://www.google.com/support/merchants/bin/answer.py?answer=160081

Which looks like this

You can see as I typed "Software" in the search, it pre-filled the option below, you just click on any of the links which is relevant for the products you're searching for and it will pre-fill the "XML" and "Text" boxes at the top. You can select either one of them and copy and paste it into the box in the "Category Component" and press save.

Note:
Make sure you copy the whole path, not just the part you need. So for mine

"Software > Computer Software > Computer Utilities & Maintenance"

Copy it all as above, NOT just the last part

"Computer Utilities & Maintenance"

Also, dont paste the "" as it just needs the path as below

Software > Computer Software > Computer Utilities & Maintenance

Thats all you need to do for each of the categories, it should take you about 1 min per category at the most.

All the best

Ian