Tagging and Categorizing Your Posts
The whole reason why tags, categories and search widgets are used on blogs is to serve one purpose — help your readers locate the information they want on your blog. Readers want quick and easy solutions; too hard and they look elsewhere.
While aim of using tags and categories is the same — to help readers locate information — they are used differently.
Categories are like chapters of a book; they provide a general overview of the topics you blog about. Whereas tags are more like the index at the back of the book and explode the topic into a million bits.
Categories and tags are displayed in your blog sidebar using the categories widget and Tag cloud widget.
Here’s a short video with a little more detail: