You are looking at the HTML representation of the XML format.
HTML is good for debugging, but is unsuitable for application use.
Specify the format parameter to change the output format.
To see the non HTML representation of the XML format, set format=xml.
See the complete documentation, or API help for more information. 
<?xml version="1.0"?>
<api>
  <query-continue>
    <allcategories accontinue="Store_Design" />
  </query-continue>
  <query>
    <allcategories>
      <c size="29" pages="29" files="0" subcats="0" xml:space="preserve">AbleCommerce 7</c>
      <c size="13" pages="13" files="0" subcats="0" xml:space="preserve">AbleCommerce Gold</c>
      <c size="2" pages="2" files="0" subcats="0" xml:space="preserve">CommerceBuilder API</c>
      <c size="1" pages="1" files="0" subcats="0" xml:space="preserve">DataPort</c>
      <c size="1" pages="1" files="0" subcats="0" xml:space="preserve">Database</c>
      <c size="1" pages="1" files="0" subcats="0" xml:space="preserve">English documentation</c>
      <c size="8" pages="8" files="0" subcats="0" xml:space="preserve">Merchant User Guide</c>
      <c size="2" pages="2" files="0" subcats="0" xml:space="preserve">Running Your Store</c>
      <c size="2" pages="2" files="0" subcats="0" xml:space="preserve">Search Engine Optimization</c>
      <c size="2" pages="2" files="0" subcats="0" xml:space="preserve">Store Customization</c>
    </allcategories>
  </query>
</api>