To create a new category for documents:
Go to the Me tab then click Documents.
Hover over a document's name then click Edit.
On the category dropdown, click +Manage This list.
Add a category name and click Done.
Now this will show in the dropdown and you can assign a document to this category.
📌Note: Even though there is no way to archive documents in People HR, you can create a category named Archived and assign the documents to this.