Instead of Tags, it's actually called labels but yes, you add labels to your blog and it creates different categories, especially if your blog is covering more than one label. And the labels are actually the key words you're using in your blog. If I'm making sense-
Say if you have a blog about website creation and you choose 4 labels:
web hosting
html
java script
internet
These four would be your keywords, thus your labels, thus you have four categories in your blog and every time you post about something about these four things, it's automatically listed in that category/label