Tags are a great way to organize and search for your people quickly and easily. While User-Defined Fields are used for gathering data on all people, Tags can be applied to specific people. There is no limit to how many Tags you can assign to a person. Tags can also be used in the creation of a Smart List. This can help you cut down the time it takes to make Smart Lists that are very specific as well.
To create a Tag, go to Config on the People Screen and select "Tags". From there you can create how ever many Tags you need to assign to your people. Tags can only be created from the Config screen as this helps avoid the possibility of creating similar Tags which would be duplicates.
In many cases, Tags are a better way of organizing your people and also save time in comparison to User-Defined Fields. Tags are the future of organizing user data.