Categorical variables are types of data that represent distinct categories or groups. They can be divided into two main types: nominal and ordinal. Nominal variables, like gender or color, have no inherent order, while ordinal variables, such as education level or satisfaction rating, have a clear ranking or order. These variables are often used in surveys and research to classify data. Analyzing categorical variables helps researchers understand patterns and relationships within the data. For example, comparing the income levels of different age groups can reveal important insights about economic trends.