A WordPress post can have both Categories and Tags attributed to it. You aren't required to use these features, but they are very helpful for your visitors when you have a vast catalog of articles.
Categories are meant to help you sort the topics of your posts. If your website is about apples, for example, your Categories might be different types of apples; red delicious, fuji, gala, granny smith, etc. Your blog requires one default Category that is created for you when WordPress is installed, and called Uncategorized. You can change this to read simply "posts" or "news" or something else, if you wish. If you forget to assign another Category, your website will assign this Category for you automatically, when you publish your posts. You can add as many Categories to your blog, and assign as many Categories to blog posts as you wish. There is no limit.
Tags are similar to Categories in that you can assign as many as you like to any given post. There are no Tags assigned by default, and no requirement whatsoever to use Tags. If your blog is about apples, and you are categorizing a post under gala, your Tags for that post would describe what the post is about in a less generalized way. For example, if I've written an article about gala apples and how they're grown, one of my Tags might be 'apple farming' or 'from farm to table'. The more Tags you assign to your post, the more likely your post is to get organic search engine traffic.
Think of it like throwing a handful of gravel at a bucket. The larger the handful of gravel, the more chances you have to get some into the bucket.
You can use more than one word for Categories and Tags but it's advised to keep them short whenever possible. They can also be given descriptions, and even featured images. This comes in especially handy if you plan to present your visitors with the ablity to read posts on a specific topic. For example, you could display posts by category, and then provide what's known as a Tag Cloud to allow users to choose what they wish to read based on one or more of these taxonomies.
Familiarizing yourself with Categories and Tags is paramount when you are beginning to post articles.
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