Tags is used for grouping servers. When you have few servers it is easy to keep track of them but, it is increasingly difficult to keep track of servers when there are too many of them. To reduce the difficulty in dealing with too many servers you can use tags.
Using tags you can categorize the servers by grouping a server under a single tag or you can also enter multiple tags separated by 'Space' for each server. Also, note that if you don't provide any tag then by default the server will be categorized under 'Not Tagged'.
Using tags, it is easy to search for a group of servers at once, simply enter the tag name in the server selector with # (ex: #test) and all the tags with the entered keyword will be listed and you can further select the desired tag to select servers tagged under it.