When users are member of a group they can select which group to show as a badge from their user settings
In the access control in the admin area you have "read" & "write" against the groups, when I click on the read & write options they go grey but do not appear to change my ability to read or write to that particular category, is this purely because I am a admin or am I missing the point?
Yep, as an admin, you automatically have global access to all categories.
You can create a new unprivileged user to see how it interacts with regular users.
@julian thank you will have a play, but is the access default read & write on? as in white and too restrict grey?
No, the default is "off", but keep in mind that if a category has NO restrictions at all, then it is globally accessible.