Categories and tags allow you to sort your content into topics. This makes it easier for you to organize content and for your users to find it.
Categories are for broader topics. You can think of them as different cabinets in a file room. They can also have sub-categories. For example, on a news website you can have categories for national news, international news, entertainment, and op-eds.
On the other hand, tags are used for more specific topics discussed in an article. Think of them as an index of words that describe an article.