An important signal used by Google is the text contained within hyperlinks. Pages pointed at by hyperlinks containing more relevant keywords tend to be ranked more highly by Google and therefore appear higher in the search engine.
For example if I have a target page which is linked to by something which looks like “web hosting packages” then the target page will likely appear higher in Google search results for searches like “web hosting” or “hosting package”. The key is that the link text effectively confers relevance to the target page for the searches that are the same as or similar to the link text.
Using a taxonomy allows a webmaster to easily create and maintain a web of hyperlinks that confer relevance for multiple search terms. WordPress is a great example of simple and effective taxonomy manager.