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What are tags?
Tags are one-word descriptors that you can assign to any bookmark. Tags can't contain quotation marks or whitespace, but are otherwise unrestricted. You can assign as many tags to a bookmark as you like, and rename, delete, add or merge tags together.
What are tags good for?
Tagging can be a whole lot easier and more flexible than fitting your information into preconceived categories. If you want to post an article about a little known Greek philosopher, just tag it with "philosophy greece" or whatever other tags you'd want to use to find it again. You don't have to rely on the designer of the system to provide you with category for Greek philosophy. You just make up tags as you need them.
That's great for organizing personal data, but it goes even further when someone else posts related content with the same tags. You begin building a collaborative repository of related information, driven by personal interests and creative organization. For instance, to view everybody's bookmarks on design, visit del.icio.us/tag/design.
Yeah but I still don't get it
That's ok, you don't have to. It's pretty intuitive and takes a bit of practice to fully understand. Just try it and experiment a bit!