When blogging, tags and/or categories allow you to classify your posts. The taxonomy you create that way, allows searchbots (and human readers) to better understand what the post is about and to find related posts.
Ever since the release of WordPress 2.3 (in sept. 2007), you can specify both categories and tags for your posts. More or less following the ideas put forward by Lorelle-on-WordPress, I use categories as the main classification-method (putting posts in a hierarchical, directory-like structure) and add one-off keywords as tags. The only disadvantage: as tags are one-offs, the default tagcloud-widget in WordPress generates a dense put useless heatmap.
If you’re in the same situation, you might benefit from this little WordPress-plugin I wrote (well, …copy/pasted, actually, 80% is code straight from the original WP-tagcloud widget) to solve my tagcloud-woes. Once unzipped in your plugins-folder, “category cloud” will provide you with a widget which can not only generate a “tagcloud” or a “catcloud”, but also a “cat-and-tagcloud”. And because the default “general”-category might skew your catcloud-results or because you might prefer to have that NSFW-tag not show up, you can exclude tags and categories from being shown as well by entering their ID in the appropriate input box.