I’ve seen a lot of comments lately that people prefer folders over tags. In fact, it caused Google’s Docs & Spreadsheets application to make an update recently. I don’t know why this concept is so confusing for people, but these two things are really the same. Yes, I said it. Tags, labels, and folders are really just the same thing.
Most people are familiar with the term folders because of Microsoft Windows. And this is where the problem for most people starts. Everything is stuck into a folder. The problem here is the system requires that the file be in only one place. Sure, you can create a copy of the file and put it in another place, or you can create a shortcut to the file, and put the shortcut in a different folder, but that’s still a lot of work and even the shortcut is basically just another file, only this time it’s a file that redirects you to the real file.
Tagging (or labeling) became popular with the web. Like folders, it allows you to organize things. The difference between tags and “old style folders” is that you can add any number of tags to a file, without having to copy the file or create shortcuts to a real file.
Basically in traditional senses you apply a file to a folder, however you apply a tag/label to a file. Let’s look at it another way…
You have two folders on your computer: “Family” and “Vacation”. If your dad sends you a “Hey, how’s it going?” message, you can simply put that in your “family” folder. If you have pictures you took while on vacation, you can put them in your “Vacation” folder. Simple enough, right? Well, what happens when your dad sends you information about an upcoming vacation? Where do you put that, “Vacations” or “Family”? By limiting it to one of two options, you make it more difficult to find the message later on when you need it.
This is where tagging/labeling differs. The same message, you can tag as “Family” and “Vacation” and no matter where you look for it, you’ll be able to find it.
Now, that isn’t such a hard concept to grasp, is it?
So, why didn’t people just start calling everything folders instead of tags, labels, and whatever else they refer to it as? As mentioned earlier, in the traditional usage of “folder” you could only put a file into a single folder, and there was a desire to break that mentality. Hence why most people used something other than folders to describe their method of organizing information. Though I have a feeling that everything is going to change now that Google has started using “Folders” rather than tags/labels for organizing.
Personally, I like the sound of tags or labels better than folders. A folder just sounds too much like work. 
Related:
Tags: Google