Custom fields can be deleted if they are not in use. "In use" means that the custom field is being used to tag a constituent, transaction, interaction, or note as well as being used in letters, emails, reports, or forms (as a datafield, filter, column, etc). All instances of the custom field must be removed in order for it to be deleted. To delete an entire custom field category, each individual custom field within the category must be deleted.
Bloomerang recommends running a report to find where the custom field is being used, so it can be removed as needed. Once the report returns 0 results, this means that the custom field is no longer being used to tag something or someone. However, the report will not be able to tell if the custom field is used in a letter, email, another report, or form. Since the report also uses the custom field, the report will need to be deleted, as well.