Login to VirtueMart

Using the left hand 'Administration' menu select Products, then choose Add a Category

Publish
Tick showing means product will be shown on website.

Category Name
Title of Category

Category Description
Add a description of your category (optional)

Parent
Is this a top level category or a subcategory? If it is a subcategory, choose the parent level from the drop down.

Select the Images tab

Make sure Auto-Create Thumbnail is selected

Upload an image from your computer by clicking the Browse button (in the left-hand pane) to open a file menu. Select the file you want to upload, this will enter the path of the file in the Full Image box

Save