1. Category description (this is useful other than the sidebar)
2. Children categories
3. Posts in the category

Clicking on any category causes this menu to display all posts within that category. I generally try to stay away from children categories but children categories may also be displayed.

/* If this is a category archive
*  This is a continuation of the if - elseif
*  sequence from the default template sidebar.php
*/
<?php  } elseif (is_category()) { ?>
<?php $current_category = single_cat_title(”, false); ?>
<?php $category_id = get_cat_ID($current_category); ?>
<li><h2>Description of <?php echo $current_category; ?></h2>
	<p><?php echo category_description($category_id); ?></p>
</li>
<li><h2>Children of <?php echo $current_category; ?></h2>
	<ul>
	<?php wp_list_categories('orderby=name&show_count=1&hierarchical=0&title_li=&use_desc_for_title=0&child_of='. $category_id); ?>
	</ul>
</li>
<li><h2>Posts in <?php echo $current_category; ?></h2>
<ul>
	<?php while (have_posts()) : the_post(); ?>
		<li><a href="<?php the_permalink() ?>" rel="bookmark" title="Permanent Link to <?php the_title_attribute(); ?>"><?php the_title(); ?></a></li>
	<?php endwhile; ?>
</ul>
</li>
<?php } ?>

What is going on here?

First we check to see if we are working with a category. If yes, we proceed. Next we assign the category name and the category ID to PHP variables. Then using some template tags and basic formatting, we output the category’s Description, Children, and Posts.

References:

• http://codex.wordpress.org/Template_Tags/wp_list_categories
• http://codex.wordpress.org/Template_Tags/single_cat_title
• http://codex.wordpress.org/Template_Tags/category_description
• http://codex.wordpress.org/Function_Reference