tips:
When creating categories make sure to set the parent cat as default category (or other category), not root catalog which is selected by default.
Make sure your categories are active.
Make sure cache is turned off here: admin > system > cache management.
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to create vertical category menu in left column
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1. duplicate \template\catalog\navigation\top.phtml
2. save it as leftMenu.phtml in the same directory
3. edit \layout\page.xml - add new structural block to it called left.menu with this code
<block type="core/text_list" name="left.menu" as="leftMenu"/>
4. then add your new content block to \layout\catalog.xml
<reference name="left.menu">
<block type="catalog/navigation" before="-" name="catalog.left.menu" template="catalog/navigation/leftMenu.phtml"/>
</reference>
5. finally in \template\page\ go to the template you're using 1column, 2columns-left, etc and add your call out block
Add this:
<?php echo $this->getChildHtml('leftMenu') ?>
Above this:
<?php echo $this->getChildHtml('left') ?>
6. stylize CSS by assigning new <div> id's and classes in leftMenu.html and adding your new corresponding style rules to boxes.css
note: these steps are only necessary if you want a new structural block called "left.menu" in which case you can then position your category menu always above the other structural block on the left called "left". Otherwise you can alter the above steps to put your menu in the structural block "left" which is already there. Do this by skipping steps 3 and 5 and on step 4 setting reference to <reference name="left"> instead of <reference name="left.menu">