Tags are something that have come to dominate searches both online and offline because they offer such a convenient and effective way to identify files.
Tag Folders works by applying tags to your folder so that Finder can locate them more easily. Now, I have no problems using Spotlight and fail to see how Tag Folders can significantly enhance searching abilities on the Mac although if you have a lot of folders or documents of a similar theme, I can see how it could help.
In practice however using Tag Folders isn't quite as straightforward as it's supposed to be. To use it, you're supposed to be able to simply drop any file onto a Folder that you've tagged and it will immediately be tagged to match the Tag Folder’s search criteria. However, while it seems that tagging old folders is fine, creating new tags folders doesn't always mean that the files you drag into them will get tagged. Whether this is because Tag Folder is not compatible with certain types of files is not clear but it doesn't work quite as it should do.
Tag Folders is a respectable idea although it's usefulness for the average user is questionable and it needs a few bugs ironing out before it will be fully effective.