Incubator projects come with no guarantee, technically no support, and no documentation as they're experimental projects. All of this and more is directly explained on the Incubator overview page on forge. This is also explained on the Incubator page here under CB Solutions.

Onto your issue, you need to navigate to CB Blogs > Config > Blogs > CMS and select a Joomla content section/category where CB Blogs will pull its blogs categories from. Example explanation as follows.

Blogs (Section)
- General (Category)
- Sports (Category)
- Games (Category)

With the above "Blogs" selected as your section in CB Blogs when a user creates a new blog post they'll be able to select 1 of the 3 categories (General, Sports, or Games). CB Blogs will then properly store it to Joomlas content tables when they save.

Alternatively you can set the Model in CB Blogs to "Internal" and use CB Blogs own database tables. You specify categories for it under Blogs > Internal as a comma separated list.

The create menu link generates an internal Joomla menu link. You can move it wherever you want. The reason for this is CB Blogs isn't a Joomla extension so a internal menu item via XML structure as normally isn't possible.

Joomla 1.7 doesn't have Sections, so a Category will be used to act as a Section. In J1.7 you should do the below.

Joomla > Content > New Category > Title > "Blogs" > Save
Joomla > Content > New Category > Title > "General" > Parent > "Blogs" > Save

The above gives you a Blogs category and 1 sub-category (General) of it.

Within CB Blogs > Config > Blogs > CMS you'd select "Blogs" as your "Section" from the drop-down.

The reason you don't have any categories is because you never created any. You just created the top level "Section".

Also, I DID NOT have a Main Menu Item ...so I just created it and assigned = Menu Type > Category Blog and selected "Blogs" (save-close)

That's not a menu link to CB Blogs. When you click "Create Menu" it generates a internal menu link to CB Blogs in the new menutype "Incubator" and you can then move that link wherever you want.