This setting requires that you provide a category ID and post ID.
You won’t see a drop-down list with categories. I understand that it might be confusing!
Similar to the description says, you have to write, for example: categoryId=6;postId=453.
categoryId is the category the calendar will be displayed on top of. postId is the post in which you put the calendar with [calendar][/calendar]
Just further clarifying, this site setting will put a calendar from a specific post into a category view.
There’s a different one, events calendar categories, where you have a category picker to select which ones you want to enable a top calendar, displaying events from the topics created in that category.