My experience with the IWF
I have been involved to an extent with the IWF before. I was spammed with a link to an appalling website showing some horrendous images of child abuse. I reported it to the IWF who immediately passed on the report to the correct authorities that were responsible for the countries involved. The website was gone within days.
Has anyone actually read the report? The exact quote is "During 2007, the IWF processed 34,871 reports which resulted in 2755 top level domains with child sexual abuse content being assess, confirmed as potentially illegal, traced and the appropriate intelligence being disseminated accordingly"
Although the use of the TLD phrase is technically wrong, they are essentially excluding subdomains from counting as an extra number. 2204 of the 2755 were classified as websites which people were making money (hence commercial). This does not mean 2204 separate people trying to make money though.
Whilst it may be correct that category 1 does not specifically mention nudity, it does not exclude it. The table comes from page 109 of the following, and is an official legal guideline document, not something exclusive to the IWF:
http://www.sentencing-guidelines.gov.uk/docs/82083-COI-SCG_final.pdf
From this document I understand that "no sexual activity" simply means that there is no physical contact with another person.