Seriously, they won't.

I try to make child categories out of my parent categories, but instead they are part of the list. Meaning, they are added to the list of the parent categories. The reason why I chose Atahualpa was to have child categories.

Can anyone help me with this?

Thanks in advance!

what version of Atahualpa and WP?
What is the url?

Categories are a Wordpress concept. They are defined in wordpress (dashboard->posts->categories) and that is where you specify one category to be the child of another.

when you say 'they are part of the list' - what are you refering to?

www.royaltyinthenews.com

The WP version is 2.9.2

It's the most recent Atahualpa, 3.4.6

What I mean is, I want the child categories to be indented in the list of categories. But when I try that, they do not stick out.

What you are looking at (in the left sidebar) is a widget. This 'category' widget is one ot the default widgets that come with wordpress. It has nothing to do with Atahualpa. You might want do a google searchusing 'wordpress plugin category' and try out some of the ohter plugins to see if you can find one that will serve your needs.