Ok.. Here's the simplest explanation I could get my hands on..
Tags are a new style of search data that describe what each page or story on the site is about. The tag cloud is therefore a visual map of the content on a site. Normally tags that are large and bold are written about a lot, tags that are smaller have only been written about a few times.
Tags are a new form of information design pioneered by the most successful online communities. They offer another way to navigate content on a site, showing patterns, the scope of content available, and how popular different keywords are.
Some sites allow you to tag content with your own words, helping you organize and remember content that is relevant to you. And by sharing your tags with others, an evolutionary "wisdom of crowds" map is created, helping you and others find valuable signals within all the noise.