What is the difference between tags and categories as you use them in your WordPress interface? Lorelle provides a starting point in helping you figure out how to use them.
My friend Dawud, an avid blogger and small business adviser with a lean towards social marketing actively uses them on his site as an example of use. Check out his categories and then at the bottom of the page, he has a tag cloud.
Just a starting place to get an idea of how to work with these two tools.