Advice and answers from the BlogPress Team

Here's the Short answer and then the official answer from WordPress.org.

Short answer - It's the way your site is organized with categories, tags, and menus.

Long answer...

What is a taxonomy?

Taxonomy is one of those words that most people never hear or use. Basically, a taxonomy is a way to group things together.

For example, I might have a bunch of different types of animals. I can group them together according to various characteristics and then assign those groups names. This is something most people encounter in biology classes, and it is known as the Linnaean Taxonomy.

In WordPress, a "taxonomy" is a grouping mechanism for some posts (or links or custom post types).

The names for the different groupings in a taxonomy are called terms. Using groupings of animals as an example, we might call one group "birds", and another group "fish". "Fish" and "birds" are terms in our taxonomy. As an example from WordPress, a category or tag (see next section) is a term.

Default Taxonomies

WordPress has three built in taxonomies that you've probably used already.

Category

The 'category' taxonomy lets you group posts together by sorting them into various categories. These categories can then be seen on the site by using '/category/name' types of URLs. Categories tend to be pre-defined and broad ranging.

Tag

The 'post_tag' taxonomy is similar to categories, but more freeform. Tags can be made up on the fly, by simply typing them in. They can be seen on the site in the '/tag/name' types of URLs. Posts tend to have numerous tags, and they are generally displayed near posts or in the form of tag clouds.

Link Category

The 'link_category' lets you categorize your links. These tend to be used only internally, for organizational reasons, and are not usually exposed on the site itself. They are handy for defining groups of links to be displayed in sidebars and the like.

Complete Answer -  http://codex.wordpress.org/Taxonomies

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