In real world, taxonomy is the classification of something
Taxonomy in WordPress Context
In WordPress, taxonomy is a way of grouping posts (or custom post) based on a relationship. In default WordPress you have the taxonomy category and tags which are groups of the posts based on relationship.
You can create taxonomy called recipe, book etc
Default Taxonomy in WordPress
There are two types of taxonomy in WordPress default installation
They are:
1 Category
2 Tags
How to create taxonomy in WP
You have a function called register_taxonomies() in WP codex to create new taxonomies
register_taxonomy( string $taxonomy, array|string $object_type, array|string $args = array() )You have got several parameters for this function, first one is the name of the taxonomy
Add the following piece of code to your function.php file in your theme and you can see the new taxonomy appear under the post menu of the admin section