There are two parts to this: Adding tags and categories to your posts, and then some follow-up questions.
First, adding tags and categories to your posts:
1. On every post at the middle and bottom right you'll see "Categories" and "Tags."
2. When you create a post you'll have the option to add the post to an existing Category or create a new one. To add to an existing one just click on the small box to the left of the category. To create a new one click "+Add New Category," fill in the rectanble box with the category name and underneat where it says "Parent Category" click "Add New Category."
3. For tags, you'll see "Post Tags" under the "Categories" area. To add a tag just type in your desired tag with a comma and a space separating it from the next tag. If you prefer, you can write your tags offline and paste them in. For example: Chicago Cubs, Starlin Castro, GM Search
That's really it.
Five questions you may have:
1. What's the difference between Tags and Categories?
Answer: Essentially, nothing. In both cases, when a reader clicks on a tag name or a category name it will pull up a chronological list of any of your posts that are tagged or categorized with that particular name. The typical use is that Categories are broader (therefore you may only have 10-15 total Categories for your blog) and Tags are more specific (So you could have a lot and perhaps even use tags in silly ways).
2. Will this help my traffic?
Answer: It certainly won't hurt and it should help as long as you use your Categories and Tags in a way that make clicking on them beneficial to your readers. For example, if you use the Category or Tag "Cubs" then don't also use "Chicago Cubs." Be consistent with how you use Tags and Categories.
3. Can I go back and add Tags and Categories to my old posts?
4. How do I had to my blog?
Answer: Go to your Widgets and you'll see "Blog Categories" and "Blog Tags" as options. Just move them over to the Sidebar Layout and they'll show up like other Widgets.
5. Can I see Tags and Categories on my blog posts?
Answer: Yes, they are visible at the end of your blog post.