In your admin panel under Settings -> General, you can choose the number of levels for your category selector. This controls the size of the dropdown navigation menu in the upper right corner of your screen (in the default templates at least). You will of course want to keep it short enough that it's a useful navigational aide and not just eating your bandwidth and slowing page loading for modem visitors.

Note: For the level limit to take effect, you'll need to regenerate the selector/sitemap (admin panel->misc->regenerate) or wait until an item is added or edited.

If you have a large number of categories (more than 400) and haven't set your tweaks file to say otherwise, the levels in your sitemap will be automatically reduced to that of your category selector and the selectors on the submission pages will be switched off.