Tags, in short, allow you to filter.
Many reports contain dropdown filter menus for tags, allowing you to see just the sales categories you've tagged. Ex. Vinyasa classes vs. Yin classes. Or one membership vs another.
To create and assign new tags, click Customers > Tags > Create new tag.
Name it > choose what it can be applied to > choose whether to turn it into a customer badge > then add a custom label and color for said badge.
If you create a tag for a membership; then
assign this tag to that membership (from its Edit page); then
everyone on that membership will have that tag/badge showing on class signup lists.