Tagging - Website category based tagging - good for SEO ?

This is for novice users.
"TAG" is a keyword associated with piece of information on the website. Tagging is grouping similar features under common tag. Tagging is getting popularized with web-2.0.
In simple terms tag is similar to bookmark or directory in file system with few advantages. User can tag a set of features with same "tag name" which enables other users for easy browsing/searching etc.

You can find information about tags on web.
Link to wikipedia, http://en.wikipedia.org/wiki/Tag_(metadata)

Websites that uses tagging: delicious, flickr, youtube, technorati, last.fm, furl.net
tagging is also useful retail website where user can categorise different products under some tags. Amazon.com is one such website where tagging is used for all products,
http://www.amazon.com/gp/product/B001O0EHWC/ref=s9_alfla_gw_ir01?pf_rd_m=ATVPDKIKX0DER&pf_rd_s=center-2&pf_rd_r=0PB846ARXHX6QGGKS7D2&pf_rd_t=101&pf_rd_p=473041251&pf_rd_i=507846#tagContentHolder

Tagging is also called social bookmarking where individual can share their public bookmarks to other users.
Initially when I read about tagging I was not sure how tagging will help you with SEO. tagging is useful when spider finds a tag and follows all its bookmarked sites and index it. There is also problem where tagging implemented website might set rel=nofollow attribute for all links in tag group.

Recently I read a nice article about tagging and SEO,
http://forums.seochat.com/blogs-tagging-rss-feeds-74/tagging-and-seo-52386.html

What is your take on tagging and SEO?