In a nutshell folksonomy refers to labelling items by what people generally call them rather than what the owner or creator of the item would choose to call it.

For example, manufacturers of equipment often refer to their products in technical industry terms e.g. "mobile device"  for mobile phone. The folksonomy around mobile devices could include mobile, mobi, cell phone, handy or hdy (in Germany), GSM (in Belgium) etc.

Folksonomies show what people really call things. They have been a point of discussion on the web because the whole point of having a website is to be found. And to be found, people have to use search terms that match your content.

On sites where people can bookmark items so they can refer to them later, and where they have the option to freely label the item with any words they choose, different people will call the same item by many different names. Knowing how people refer to your products and services can give new insights into how people use them and new ideas on how to market them.

A taxonomy on the other hand, is a controlled system of organising and categorising information where people label things according to a predefined list of terms.