How does Magento handle product categorization?

Magento handles product categorization through a hierarchical category system, which allows for a well-structured organization of products. This system enables merchants to create multiple categories and subcategories, making it easier for customers to navigate the store and find specific items. The hierarchical approach not only improves the user experience but also facilitates better management of products, as each product can be assigned to multiple categories or subcategories if needed.

This structure supports various strategies for product visibility and allows the use of nested categories for more granular control over how products are displayed to customers. For example, a merchant can create a main category called "Clothing" and then have subcategories for "Men's Clothing," "Women's Clothing," and "Children's Clothing," helping customers find their desired products quickly.

The other options mentioned do not reflect the way Magento effectively organizes products. A flat file system would not provide the necessary flexibility and hierarchy. Tags and labels are useful for additional sorting and filtering, but do not replace the core function of categorization. Meanwhile, a color-coded scheme is not applicable in terms of a systematic approach to product categorization in Magento.