Tags are an invaluable resource on Tumblr. They help users find your posts. They also assist you in organizing your content.
Depending on the Tumblr theme you select, the tags you choose for a post may or may not display on your blog. For those themes that show tags, the tags may appear along the bottom, top, or side of your post. See "Filed under" in picture below for one example:
It's important to choose tags wisely so that your content reaches as many users as possible. A few tips for making tag selections:
Add some pizazz to your blog by presenting your tags in a tag cloud created with the (free) Pretty Tag Cloud Maker for Tumblr. The Cloud Maker is a fantastic tool. It is free to use "as long as you agree to and abide by the conditions of the License and Terms of Service" which may be found in the Cloud Maker's "About" section.
The easiest way to add the tag cloud to your blog is to add the cloud code to one of your pages or paste it into the HTML code of your Tumblr Theme (for instructions, see the Tag Cloud Maker's "Help" Tab). To access Tumblr pages and your blog's HTML code, click Customize on the left side of your dashboard => Scroll down and you will find the option to edit/add pages as well as the area containing the blog's HTML code.