Many thanks for your input guys - that video was a bit too brief to clear anything up for me. But the categories = contents, tags = index is a useful explanation by Lorelle.
I don't mean to be a pain but I'm still having trouble with this - I think for any traditional blog it would be easy to make the distinction, but in my case it gets tricky because there's a few things I need to consider (apologies for the lengthy explanation):
It's an image bank where all of the images are 35mm slides from the mid twentieth century - so the topics can range from weddings, holidays, funerals, portraits, landscapes and everything inbetween - the images cover everyday life in all its aspects (unlike Jint's concert photography site, which is a very specific topic and so I understand the need for both categories and tags).
It is targeted towards designers, artists, illustrators, set designers etc. as a resource for referencing. So users may wish to know what people dressed like in weddings from the 1940s... or perhaps someone needs to draw a 1950s car... or use an image of an old baseball stadium.
So in terms of navigation there's a couple of things I think are important - firstly users should be able to browse and filter the images by a specific category: for example if you wanted to see all the images that had planes in them, you could go to the Transport > Planes category. I'm currently using a drop down menu for this - which turns a massive list of items into a compact little bar, which I think works well.
Secondly users should be able to browse multiple categories (for example, they may want to see only planes that are red... so Transport > Planes and Colour > Red). This isn't possible with the drop down menu but a search feature would be able to perform that action (there's a plugin that allows searchable categories as well as tags).
As you know my dilemma is whether to use categories or tags for this... Categories can be displayed in an easy to navigate menu such as the one I'm currently using (wp-list-categories), but I'm not sure if this will cause me problems in future; in terms of SEO or connecting to other sites. Maybe not?
Tags seem the more traditional way to go, everyone so far says they would be better - yet no one can quite to explain why they are better. In terms of navigation I think tag clouds are not very functional and I don't think there's any way to display them in a drop down menu - there's no wp-list-tags or the ability to organise child tags by their parents (or is there?)
Lorelle explains categories are like a contents page, and tags are the index page. This makes sense, but in my case I don't think I have a contents page - just an index... but the ability to navigate through this easily is important, so perhaps categories are better?
Here's the website at the moment: http://www.museumofmodernlife.com the images are just test runs, but you can see the drop down menu and the minimal approach I'm trying to go for - all emphasis on the images.
Apologies again for the massive explanation, but I do feel this is different from your regular blog or image bank... I'm no wordpress or php expert either so I need to be able to keep it simple.
I'd still very much like to hear you guys think about this, and really appreciate your input.
Thanks again.