Tags are essentially public labels. Tags can be specified in the URL. Tags usually show up on content pages, so you can browse similiar content. The tagging system can be accomplished via the Category system, but it shouldn't because tags are considered a light weird mechanism you can create on the fly. Also keeping tags seperate from categories allow you to browse tags within a category.

You can add tags in batch or on a per content basis. Tags can be added in batch under the "bulk operations" widget on the "browse content" page. Tags can be added manually on an individual content item, by clicking on the "edit properties" link on the content page.