Categories are meant for grouping content such as posts within your blog site or even products within an Ecommerce site.
Tags on the other hand are meant to provide more descriptive details about the posts.
Both categories and tags can be assigned within posts as illustrated below:
Categories and Tags are essential in SEO, in that they help Search Engine Crawlers and site visitors easily navigate your site, hence creating a better user experience.
Using categories within your site will also avoid your content from competing for the same search keyword. Let’s say for example you have a blog set to render news in different regions. If there are no categories and tags present, all posts will compete for the term “news”. If however this is broken down to for example various regional news such as “Asian News”, this way, we will have the category rank for “Asian News” and the posts within it can rank for more specific terms, with the help of tags.