I doubt that most people truly understand tagging even though they say they know what it is. They recognize the word. Not necessarily the meaning.

Suspect a part of this is also about “contribution” - there is a nice warm and fuzzy feeling to write, tag, upload or email something. You feel part of something.

Tagging is another piece of this puzzle.

What other functions make a person feel like they are contributing? AND What is the positive result of this? What will we see in the future?

The way I see it people use first tags (keywords) to search for content on Google, and bookmarked a whole page for later (re-)use. But people use more ways to tag content these days hence when you would do a survey “people could mistake tagging for all these actions (bookmarking, searching, tagging on flickr, etc. …)

I do believe tagging is part of a folksonomy, and categories are still more like partial to taxonomies. Though the whole action of tagging content are actions similar to categorising stuff as well (as indicated by Jay!). But I believe there is a small difference in context.
Tags need to be in a mostly plural from and describe the content eg. river water boat, and categories (are more higher in the hierarchy) eg boating, marine.

Just my idea …

when using good tags that are concise

The funny thing is, that tagging is a special form of categorization by users. It’s nothing more.

Tagging can be something “less” as well: tagging also can be a special form of naming by users. And, tagging also can be a special form of describing by users.

Many free tagging systems present users with three entry fields in a row:

title:
description:
keywords:

And, the keywords / tags often end up being a variant of either the title, the description, or both. In these cases, the tags are less like categories and more like names.

On the other hand, people specifically categorize things through naming and description as well, e.g., sometimes people think that using category labels in titles and/or descriptions is a form of categorization.

For example, when someone puts an ad on craigslist and titles the ad: “free guitar available in Seattle,” they explicitly may assume that people are searching for “categories” like: free, guitar, seattle (or some combination like “free guitar,” etc.).