Within a menu you can point to a submenu. A submenu is another DAT menu file.
To point to a submenu you have to set the submenu filename in the Exec option starting with a colon (:)
[Submenu name] BoxArt=<Submenu Boxart image file> Description=<Submenu Boxart image file> Exec=:<Submenu file without extension>
[Racing Games] BoxArt=racing Description=All the racing games Exec=:racing
The Example points to :racing. Therefore you need to have a RACING.DAT file with the menu entries for the "Racing Games" submenu.