Customizing item template to loop and sort

I'm looking to the creative people who have worked through the drudgery of trial and error to figure out templates, etc for the web store.

I want to create a simple table of item that are one after the other, however I want them to be separated by their category. The idea is to display all on a single page:

Category1:    item1    item2    item3    Category2:    item4    item5    item6    item7    ...  ... 

I want to essentially tell the template to loop through the sub-categories I am in (or loop through some sorted field on an item record) and then list the items one after another underneath the specific category. Ideally I wanted to add a custom field to the item record that would define the 'category' and then somehow loop through these categories to display the items appropriate to the category.