Category product-type restrictions
Category “restrictions” ONLY restrict which product-types you can use to CREATE NEW products within said category. If a category is restricted to a certain product-type, then ONLY that product type will appear in the pulldown menu next to the “New Product” button.
Categories can contain products of any product type. But the restrictions affect creation of NEW products. Essentially, the restriction feature is simply a “control” to help prevent errors during data-entry using the admin interface.
What about display?
Whatever product type you use to create a product will be used to display that product to the customers in your store. The display in the store has nothing to do with the restrictions in the admin related to a given category. It’s based on the product-type of the product, not the category.
To set a category product-type restriction, edit the category you wish to change by clicking the pencil icon at the right of the category name when you have navigated to the category using Admin > Catalog > Categories.
Then, at the bottom of the screen, select the desired product type from the
Restrict to Product Type dropdown. Press either
Add include SubCategories
Add without SubCategories.