The Departments feature is used for organizing your product management efforts as it enables you to specify users responsible for the management of products in a particular department of your on-line store. This means you can have a different product manager e.g. for the books and for the electronics departments.
You create a single department and place all products in it. However, if you have more product managers in your on-line store, you can thus create multiple departments and have them managed separately by several product managers.
Please note that the departments are not the same as product categories displayed to the site visitors.