How can I nominate games on Steam?

I have the option to nominate games on Steam. How can I nominate games? Also, are there any benefits for nominating a game?

1. Go to Steam Store
2. Search for game you want to nominate
3. Click "Nominate ..." button.
4. Choose category.

So far I've seen no bonuses for participating, except another badge, for which you need to fulfil 4 requirements:

1. nominate game,
2. nominate in each category,
3. write or update review on nominated game,
4. play one of nominated games

TL:DR See @Sanctus answer

There are eight categories which you can select from, these are:

1. The “Test of Time” Award

This award is for the game that is just as good today as the day you first played it. Newer games may come out, but it doesn’t matter… you’ll always come back to play this one.

2. The “I'm Not Crying, There's Something In My Eye” Award

Games are fun. But sometimes games become more than that, and touch you in a way you weren’t expecting. This award celebrates the game that blindsided you emotionally. You weren’t expecting to cry. It wasn’t in the plan. But it happened none the less.

3. The “Just 5 More Minutes” Award

You have an early day tomorrow. You need to get some sleep, so you’re just going finish one more thing before you decide to tuck in for the night. Just one more. Wait, one more. What’s that you say? It’s 2:30 AM? This award is for the game that keeps you playing late.

4. The “Whoooaaaaaaa, dude!” Award

Some games melt your face. Maybe it was a crazy plot twist. Maybe you just got your wisdom teeth removed. Either way, this game BLOWS YOUR MIND.

5. The “Villain Most In Need Of A Hug” Award

Some people just need a hug.

6. The “Game Within A Game” Award

Kinder Eggs. Peanut Butter Cups. Jelly Donuts. All great things stuffed with other great things. Like a mighty turducken, this award celebrates the best mini game hidden within another game.

7. The “I Thought This Game Was Cool Before It Won An Award” Award

This title didn’t have a huge marketing machine behind it, but you found it and loved it. Then you told your friends about it. And they loved it. And now that little game that could is about to win an award… but always remember: you totally found it first.

8. The “Best Use Of A Farm Animal” Award

Animals are rad and almost any game is better for including them. However this game used a farm animal in the best way possible.

And finally, the option to add your own nomination.

(*name pending Selection Committee Decision) There are as many great ideas for awards as there are great games to play. And so we turn to the Steam Awards Selection Committee to come up with their own category and nominee. Senior members of the Selection Committee will review the write-in entries and create an entirely new category based on the feedback provided.

To nominate games, search for them in the Steam store, then click “Nominate this game for an award” and select a category for that game. Or find the game in your Library and use the Store Page link at the far right, in the Links section.
Each level of the badge gives an additional 25XP towards your Steam Level.
You can also edit your nominations by visiting that game’s store page and click on "edit" to change or remove your nomination.

Source The Steam Awards