Add Categories To Custom Post

Assuming that your post type is registered as albums, you can add a custom taxonomy to the post type as follows:

add_action( 'init', 'create_album_taxonomy' );

function create_album_taxonomy() {
    register_taxonomy(
        'albumtype',
        'albums', // content type here
        array(
            'label' => __( 'Album Type' ),
            'rewrite' => array( 'slug' => 'albumtype' ),
            'hierarchical' => true,
        )
    );
}

Place this in your functions.php. Hope this helps