Categorization and definition are essential aspects of human reason; they give practical shape and meaning to concepts, and are therefore unavoidable during the process of understanding. Although this is currently the case, we must also realize that all definitions and categories are ultimately arbitrary, as their referents are purely conceptual; meanwhile, physical referents found in the "real" world are in fact interconnected with their surroundings, and mutable.
Arbitrary categorization is often a major problem in our society resultant from poor understanding of the mechanisms of causality and relation, or the populace's inability to properly conduct qualitative analysis. However, it is important to abstract this problem into two major groups, given that categorization is occasionally a necessity of being human:
1. General categorization: Often problematic, but sometimes temporarily necessary for the purpose of discussion or deliberation. If I give a name to a set of concepts that I find worth implementing, that does not automatically imply that I will not consider casting off the name as soon as new data becomes available. However, any form of categorization becomes a problem as soon as I decide that, because each member of a category shares a given quality, they must necessarily share all qualities. For example, all apples grow on trees, but not all apples are red. Sadly, this principle of multiple qualities is often ignored when people conduct qualitative analysis.
2. Categorization of new ideas by predefined groups: More or less always problematic, as it attempts to force new concepts and memes to "be" older ones. This is usually done in order to gloss over the nuances of the new concepts, thus trivializing them and relegating them to the status of having already been tried and tested.
Note, also, that a set of concepts can exist within a category without any particular generalization being inferred from their interaction. For example, categorizing a person who participates in the welfare system as "poor" is not the same as stating that all poor people are uneducated drug addicts; the latter is poor induction at its worst, and quite pervasive in today's society.
Put succinctly, there are two distinct errors of categorization:
1. Inferring that qualities not inherent in the definition of a category apply to all members of the category. Example: Some obese people are lazy; therefore, all obese people are lazy.
2. Assuming that qualities shared between a category and an unassociated idea imply that the idea is actually a member of the category; assuming that any quality shared by members of a category is a defining quality of the category itself. Example: Existentialism rejects a personal god; therefore, existentialism is the exact same thing as nihilism.
Update: Upon giving this further thought, I think that I've pinpointed a third error:
3. Inferring that, because a good or bad idea is a member of a given category by default, any associated idea, or the category itself, is absolutely good or bad. Example: Existentialists do not believe in god; therefore, existentialism is good. Antithetical example: Fascism is oppressive; therefore, the concept of impinging on so-called "freedoms" is bad.