how does category really works?

Ive been re-reading the codex and its just very confusing to me. ive been doing trial and error but cant seem to make it actually work the way i want it to be. please understand that im quite new in WP

Questions below:

1) is category.php necessary? is this something i need to show a posts from a specific category. (e.g cars) all cars posts should be displayed here
OR its a page where all categories is listed (like if i have more than 1 categories)?

2) i created a category.php and used this code

<?php get_header(); ?>

<?php
/*
Template Name: CARS
*/
?>

<?php query_posts('category_name=cars&showposts=15'); ?>
<?php while (have_posts()) : the_post(); ?>
        <li><a href="<?php the_permalink(); ?>">
          <?php the_content(); ?>
          </a>  </li>
        <?php endwhile; ?>

<?php get_footer(); ?>

^ not sure if this is standard, or should i create a custom php page (like cars.php) and use it as a template page.

regards.