Does Community Answers support multi-level categories?

Community Answers does support multi-level categorization.

And what's more? You can even move category from one parent category to another parent category by drag and drop. Forget the hassles of moving categories by clicking up and down buttons as you do in Joomla.

I'm not sure I understand; I asked 'What is Jomsocial' and all questions were suggested as similar to my question that had nothing to do with Jomsocial

Most probably you did not enter any exclude keyword list in configuration, so the word "what" or "is" might have matched with others.