WordPress Categories vs Tags
Earlier only categories were available in WordPress to divide the posts. But to describe a post more specifically more categories were used. This made the category list very long. To avoid this, we have tags.
Categories are broad-ranging. It helps your users to identify what your blog is about. For a post, there may be sub-categories which make a hierarchy of category. It is possible for a post to have more than one category but it is best for a post to have a single category. A post must have at least one category.
Tags are like categories but they are used to describe a post more specifically. In some posts you may not need to use a tag. Tags are not needed in every post.
Multiple categories may confuse the readers. If you want to provide additional grouping in a post use tags. Tag should be relevant to the topic covered in the post. For example, if you Google for "ladies watch". Here watch is category and ladies is tag.
SEO effect from Category and Tag
Wise use of tag and category can increase traffic to your site via search engines. If both are used together, they will increase your site's usability.
Having internal links will let your sites content to be discovered by the search engine. Tags and categories will clue the search engines about your website topic and your site will be ranked for those targeted keywords.
Optimal number of Categories and Tags
There is no defined limit to use category for a post. However, for simplicity sub-categories are used when more categories are needed for a single post.
For tags also there is specific limit. You can add 100 tags in a post. Tags are used to help in searching of a post. So it is necessary to use relevant keywords related to your post.
Assigning one Post under multiple Categories
Some people used to say that using multiple categories for a single post can result SEO in a negative way or you can be penalized for duplicate content. But it is not entirely true.
Basic use of category is to sort the content on your site for your users so that they could find it easily. It is better to use sub-categories or tags than multiple categories.
Overall there is no SEO advantage in multiple categories. Only consider about your targeted audience and not the search engine. If your decision will be according to your viewers, it will increase your visitors and your site?s SEO will automatically increase.