How do I assign a Category to an existing item?

You cannot change the category of an existing entry. It's not really a category meant to group items by, it's more the template that defined the default data fields within the item at item creation (you can add custom fields afterwards).

However, to further categorize your items, you can add tags. You can even add multiple tags to one item to add it to multiple groups.
I tagged every item in my vaults and completely ignore the categories.