The setting is in: Administration Center > Features > Contacts & Companies.
Automatically assign company category to it's activities (journals, documents and emails) option gives you the opportunity to set whether you want to transfer the company's categories to the company's activities - these are journal, document, or email. For example, if you set the company as the customer of a deal and you add a document to this deal, it will have the same categories as the company.
Click the Automatically assign company category to it's activities (journals, documents and emails) setting to turn it on/off.
If the function is turned on, categories will be propagated from companies to their activities - for the propagation of categories on other items, please see Propagate Company Categories to Related Items.
If the function is turned off, the category propagation is deactivated.
When you change the settings, be sure to click Save. For more information, go to Features.