Does assigning a group to a category cascade the permissions to all forums in that category? Or do you have to assign it to all forums individually. I have noticed that if I add a forum in a category that is assigned to a group level moderators it is not selected am not sure if they will be able to moderator the forum unless i also too have to assign their group to it.

Have a look at this thread, it probably explains a lot about setting up moderators:

 

If you are limiting to forums, you have to select each forum individually (you can't just select the category).