A taxonomy is a controlled vocabulary used to describe, organize, and classify information in order to make it easier to find and use. In Microsoft SharePoint Server taxonomies of managed metadata can cover virtually any type of physical or conceptual entities (products and services, processes, knowledge fields, organizational groups, locations etc.) at any level of granularity (page, item, user etc.).
Taxonomies, centrally managed in the SharePoint Term Store, can help users to find the information they need much faster, connect users to social networks, provide portal-wide activity feeds and enable completely new ways to access information using search driven category trees or glossary style navigations: It simply saves money.
Please see screens below and the features & benefits page for more information.