How do you use tags and categories?

Just curious. A lot of software has these two types of ways to describe things (email clients, bookmark managers, filesystem browsers, note taking apps, etc) and I've never really settled on a sane way to combine them for managing my things. I end up with weird hierarchies and inconsistent conventions. Anyone have a system that takes advantage of both and works well? Or anyone ever participated in building such labelling features and could shed light on what the intended usage is?