The tag feature is a great way to organize your contacts. Adding and removing tags will help you determine specific actions and stages that a contact as at (similar but more granular than a pipeline stage). You can add more than one tag to contact.
How to Add & Remove Tags:
When importing a list of new contacts, you can add tags to some contacts in the spreadsheet you upload, or apply a tag to the list as a whole. (Refer to the "How to Import Contacts" article for the step-by-step.)
A tag can be manually applied or removed within an individual contact record.
A trigger can also be set up to apply or remove a tag to contact records. (Refer to the "How to Build and Utilize Triggers" article for the step-by-step.) Some options for the trigger action to prompt the tag-add are call status, updated appointment status, specified email(s) being sent, form submission, and more.
How to Use Tags
Tags can be used in the Smart Lists/Contacts to filter down to a specific group of leads/customers that you want to see.
Tags are used to define a group of leads in order to send a Bulk Request (think Newsletter, Email Blast, etc.)