The problem is, this feature is missing in IMAP accounts.
The good news is categories are still there; the bad news is you'll have to jump through a few hoops to make them accessible.
It's a lot of work, but shortcuts eliminate most of those steps.
For better or worse, categories aren't available via the interface for existing messages—and that's a problem because that's where this feature's real power lies.
Nor can you choose the feature from the right-click submenu.
You can convert an IMAP account to a POP3 account, but you'll lose the in-the-cloud syncing capabilities.
It's also a tedious process and I don't recommend it.
If that option isn't there, it's almost certain that you have an IMAP account.
Outlook versions 2010 through 2016 will (usually) force you into the IMAP camp.
If you're using Mail 365, the feature is available for existing messages in your Inbox.
I'm working with Office 2016 on a Windows 10 64-bit system, but the instructions will be similar for Outlook 20.
Then, you can use the shortcuts to do what the interface fails to allow you to do.
You'll assign a shortcut as follows: Now you can use the shortcut to assign a category to an existing message.
The main difference between IMAP and the earlier Post Office Protocol (POP) protocol is syncing.