The document categorizes API testing into large, medium, and small tests. It also categorizes automation into UI, API, and unit tests. While unit tests and API tests are both code level, unit tests do not query databases, communicate over networks, access file systems, or run multiple tests concurrently like API tests can. The document provides examples of API test cases, such as testing return values based on inputs, tests with no returns, tests that trigger other APIs or events, and tests that modify resources.