The answer is… it depends. It depends on what type of content you have and how your search works.
If you’ve got a site like YouTube or Flickr where users submit their own content and you have thousands or millions of submissions then categories won’t be as useful as tags because there may be thousands of entries to each category. This makes browsing very difficult and in most cases impossible. Each tag may also contain thousands of entries, but there will be many more tags with a much more focused yield of results; and using combinations of tags will also greatly narrow the number of results your visitors have to browse through.
Usability Post » Categories vs Tags
If you’ve got a site like YouTube or Flickr where users submit their own content and you have thousands or millions of submissions then categories won’t be as useful as tags because there may be thousands of entries to each category. This makes browsing very difficult and in most cases impossible. Each tag may also contain thousands of entries, but there will be many more tags with a much more focused yield of results; and using combinations of tags will also greatly narrow the number of results your visitors have to browse through.
So, tags can be used as subcategories!