Departments allow you to create a higher level grouping on categories and products. For example, you could setup depts. as follows:
Departments
•Electronics
•Music/Movies
•Furniture
•etc.
When you click on the "Electronics" dept. the following 2 things happen:
1. Categories in the category module would be filtered to show all the categories in the electronics dept. as follows:
Categories
•Cameras
•Cell Phones
•Computers
•TV & Video
•Videos
2. The BuyNow module (product listing) would be filtered to show all the products in the Electronics dept.
The user could then check certain categories to further filter the product listing to refine their product filter and find the products they are looking for.
Walmart.com and Amazon.com have good examples how department filtering works.