I came across a very good article with regards to taxonomy titled, Search in Focus: Implementing a Taxonomy by Penny Crosman. The article is a month or two old, but I haven't run across it before so maybe others haven't either.
Search engines don't know the difference between reading glasses and drinking glasses, but a taxonomy puts your query in context. We outline several ways to build taxonomies, ranging from the tough but potentially more accurate approach of building from scratch to the easier but potentially compromised approach of buying a prebuilt taxonomy or using automated clustering software.
Also be sure to check out the author's 10 Reasons To Use A Taxonomy.
The first time I heard the term taxonomy really wasn't until I started using Drupal. It can take awhile to learn how best to use (and not to use) taxonomy in Drupal, but I've always found that there was enough help around to figure how best to utilize it for my sites. Even after a couple years, I find I'm still learning how best to use taxonomy as the way I implement it seems to vary from site to site. I also have yet to figure the best way to address what I call taxonomy bloat. That's the tough part of learning, it all takes time and experience.