Here's the explanation for the Addons and Addons Categories.
For Example:
Suppose you want to create an Item "Pizza"
Pizza has different attributes like "Size", "Preparation Method", "Toppings" etc.
For that, first, you will need to go to Addon Categories and create these attributes.
Create an Addon Category called Size and make it Single Selectable (Because one pizza CANNOT have multiple sizes)
Add an addon "Small" and assign it to the "Size" category.
Add an addon "Medium" and assign it to the "Size" category.
Add an addon "Large" and assign it to the "Size" category.
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Create an Addon Category called as Preparation Method and make it Single Selectable (Because one pizza CANNOT have multiple preparation methods)
Add an addon "Pan Based" and assign it to the "Preparation Method" category.
Add an addon "Regular Based" and assign it to the "Preparation Method" category.
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Create an Addon Category called Toppings and make it MultiSelectable (Because one pizza CAN have multiple toppings)
Add an addon "Extra Cheese" and assign it to the "Toppings" category.
Add an addon "Extra Pepperoni" and assign it to the "Toppings" category.
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(All these addons can have an addon price if you don't want to set the price, put Zero (0) )
Now create an item called "Pizza" and in the "Addon Categories" section, you will be shown options to add the earlier created Addon Categories.