The Sharing Content field controls what content can be added from the source catalog by restricting which categories can be added from the source catalog. To add a category from the source catalog, the category's Catalog Content value must match the catalog's Shared Content value.
Select Items and Categories from the Sharing Content list of values. With this selection, you can add categories from the source catalog that have a Catalog Content value of Items and Categories. Those categories can contain both items and categories.