Create Menu that lists all Categories

Hi,

First I’m a total noob, this is my first time setting up a WP blog, let alone PHP.

I’m using this theme:

http://www.simplewpthemes.com/themesdemos/?themedemo=KidolinosMagazine

And I’ve created a new menu item (in my dashboard its “Add New Page”)

This is fine, but what I’d like to do is make the menu item display a drop down of all the different categories, I’d make the menu items href to # so it goes nowhere.

Problem is I have no idea how to do this, not to make it as a drop down, how to get the dropdown items to dynamically add the categories.

Any help, in simple terms would be great