A term is a word, or a short phrase, used for categorizing, or grouping, similar listings. For example, "Swimming Pool", "Balcony" and "Private Garage" are examples of terms that can be used to describe general "features" of an apartment. Each term belongs to a particular taxonomy - a fancy word for a grouping of terms.
Let's assume we are creating a site for cars. Cars have a variety of common taxonomies such as Make, Color, Transmission Type, etc. Each of those taxonomies will have its own set of terms - "BMW", "Audi", "Chevrolet", etc. are all examples of terms in the "Make" taxonomy while "blue", "red" and "azure" are examples of terms belonging to the "Color" taxonomy.
If we are creating a site for showcasing several apartment complexes, we want to allow our visitors to find apartments by certain amenities of a single apartment (e.g. something with a "balcony") as well as features that apply to all apartments at a particular complex (e.g. a "swimming pool" or "near downtown"). In this example we want to categorize the two terms into two separate taxonomies, "Features" and "Community Features".
Let's go back to the aforementioned car example. What if our site has several 3-Series BMWs and some Chevrolet Tahoes? We could create a separate attribute or taxonomy called "Models" but where would we associate models with makes? In technical words, we need a way to handle parent and child relationships between different terms. Since all Tahoes are Chevrolets the term "Tahoe" is a child of the term "Chevrolet", both terms belong to the same taxonomy, which we should call "Make & Model". If you're already familiar with WordPress, this is exactly how the "Category" taxonomy is used for organizing Posts, some categories have sub-categories. We use the same concept of "hierarchial terms" to organize listings.