Taxonomies are used in Drupal to establish categories. As Content Editors add more information into the site the taxonomy structure is used to present them with checklists of categories.
These can later be used in presenting the content in groups.
This video shows how quick and easy it is to introduce categories into your Drupal 7 website.
This is part of my presentation, "What is Drupal?" originally presented at the 2012 Minne*bar unconference in Minneapolis, MN.