It was my impression that Tags were just Apple's last attempt to avoid having "Folders" in iCloud. Wisdom on the internet is that the file system is bad and must be hidden from users. But if you add folders to iCloud, then what is it, if not a file system?
Then iCloud Drive introduced Folders one version later, and now Tags is kind of a legacy feature.
I don't think anyone but management ever really wanted tags.
Folders allow for a simple hierarchical navigation option and allow you to preserve "structure" when round-tripping resources the rely on nested folders in and out of a cloud service. It allows for strong naming and namespaces.
Tags can be user-supplied, crowd-supplied, or even through AI/expert system, and allow for cross-cutting exploration when involving stuff that can't be indexed like text. (Although even documents benefit from tags to ease finding them again when there's a haystack)
Tags require more effort to maintain but are essential when you are dealing with a complex collection.
But there is no way to implement user-supplied or crowd-supplied tags when you are practically limited to the seven colours used for tagging, and it only works if you can even remember which colour is used for which tag.
I don't think anyone but management ever really wanted tags.