Breadcrumbs just say "category"

If I click on a category thumbnail on my homepage, say “briefcases”, the breadcrumbs just say “Home / Category / Page 1”. That’s not very helpful. How do I:

1) Make it show the actual category, and possibly subcategory?

2) Get the category list in sidebar to highlight which category is currently being browsed? (i.e., By using a different active link color or highlight color.)