Taxonomy
A taxonomy is a way of grouping content in WordPress. Categories and tags are the two built in, and you can create your own for any post type.
In plain English
A taxonomy is the kind of grouping; a term is one group inside it. Category is a taxonomy, Elementor is a term in it.
Categories are hierarchical, so a term can sit under another. Tags are flat. A custom taxonomy can be either, which is how a tutorial library gets grouped by topic and by level at the same time.
Why it matters
It is what makes a growing site navigable. A hundred and fifty tutorials with no grouping is an archive nobody browses.
It also drives everything automatic: archive pages, related content, filters and query loops all work from terms.
How it works
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A taxonomy is registeredBy WordPress, a plugin, ACF, or a few lines of code, and attached to one or more post types.
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Terms are addedIn the admin, or automatically as you type them on a post.
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Posts are assigned termsOne, several, or none.
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Archives appear for freeEvery term gets a page listing everything in it.
Categories for structure, tags for detail
A handful of categories that describe the shape of the site, and tags for the specifics. Sites with sixty categories have really got a tag problem.