Collections allow you to group and sell videos as a series—you can group them either because they have the same subject or because they need to be watched in a specific order. Depending on your content, this could be a TV series or an instructional series, or something like a 10-day yoga course.
Categories are like genres for your content that help your customers easily identify the type of content on your catalog page. Those categories should be broad, just like movies are organized like comedy/documentaries/popular/etc., you should also organize your content into categories that allow you to group several videos under it.
Let's use Netflix as an example. Categories are essentially genres: adventure, action, horror, romance, etc., while collections are similar to a TV series or movie sequels that are ultimately meant to be viewed together.