A tag is a label that cuts across the filing. Projects and folders put a task in one place; a tag marks something true about it wherever it happens to live.

That is the test for using one. "Client X" is a project, because the work belongs there. "Needs legal review" is a tag, because it turns up in six different folders and none of them owns it.

Tags belong to a workspace, so the same vocabulary is available across every project in it — which only works if the list stays short enough for people to remember.