A tag can be thought of as a listing's "keywords". The idea is to "tag a listing" with the tags or keywords that apply to that listing so that similar listings can be easily searched for by site visitors. So, for instance, if your listing is to sell your sports car, you might use "sports car, automobile" as the tags on the listing.
You can enter multiple tags by separating each with a comma. Tags will be run through a "filter" which removes any characters that are not allowed, as well as, changes each tag to be all lowercase. This allows tags to be displayed more "uniform" so that your listing is more easily found and viewed by visitors.