According to website del.icio.us, "Folders were the old way to organize your bookmarks. They were great if you only had a few bookmarks and a few folders, but as your collection grew, it became harder and harder to decide what goes where. Delicious has a new and better way: tags."
Tags were also popularized by Flickr - the photo sharing website - as a way in which to categorize photos - who's in them, when they were taken, where they were taken, by season, holiday, event type, etc. - for easy retrieval. Since photos don't contain words, you can't search on them to find them. Simple concept for a complex issue; put searchable words to images.
Speaking of complex, a person that we are trying to recruit is certainly very complex thing. Arguably, people may be more complex than photos. Further, a resume, if we're lucky enough to have one, tells us what the person thinks of themselves, not a representation of what we, the recruiter or hiring manager, thinks of them. So why not use tags as a way to organize our complex set of candidate data in a Recruiting CRM system? Example tags might be java guru, high producer, bilingual, competitor employee, holiday card list, global experience, director level, six sigma, and the list goes on. Now I can retrieve candidates in my search by tags and am no longer limited to boolean every time I need to find someone in my database.
Now imagine that you have multiple recruiters on a system. You can leverage other people's tags and the system wide tag cloud to find candidates already in the database. You can quickly see how powerful it becomes and how the network effect comes into play. Enterprise 2.0 meets Recruiting 2.0.
Simple solution to a complex issue.