You need to find the picture you want to use for the category as an index thumb and then click that picture to view the full sized version. You will see a menu under the picture that will look something like:
Add to Favorites | Post a Comment | Report Photo | Receive Email Updates | Edit Photo | Make Sticky | Make Index Thumb
Click the Make Index Thumb link and it will make it the index thumb.
Note that the image must be loaded to the category you wish to use it for.