I went into the interface thinking it wasn’t possible to have a sub-sub-category. But then the interface let me pick a sub as the parent for my new category! Woo hoo! 
But I got an error on submit 
Perhaps I shouldn’t have been offered subs in the Parent Category dropdown?
You can only nest a Subcategory under 1 parent category; not a Parent\Subcategory.
I can see use cases for this but can also see how it could complicate things as well.
Yes, the design decision to not allow subcategory nesting is clear. What @ganncamp says is that the option shouldn’t be offered, since it won’t be allowed. I agree that this feature request makes sense.
In fact, I ran into this situation recently, after a year or so disconnected of serious Discourse administration. I was creating a category and I saw that a subtask could be selected as parent. For a second I thought “can it be that someone convinced HAWK about nesting subcategories?” 
but almost immediately I replied to myself “No way”, and was amused when the “You can’t nest…” dialog appeared. 
