Albums are used to tell the stories; in other words, the creator can specify the order of the images that make up the album. Albums are also shareable.
Tags are another organizational tool to add information to the stories and the photos. Tags are like virtual storage bins to keep similar items together. Often times, owners use tags to keep people, places and events together.
Another key point is that photos can be in multiple albums and multiple tags but unless you intentionally add multiple copies you are not taking up additional space.