Chances are that many of your photos fall into specific categories: baby photos, scenic shots, and so on. By creating and assigning keywords, you can make related images easier to find.
Keywords are labels useful for categorizing and locating all the photos of a given kind: vacation shots, baby pictures, mug shots, you name it.
iPhoto has several predefined keywords that cover common categories. But you can replace the existing ones to cover the kinds of photos you take, and you can add as many new keywords as you like.
You can assign multiple keywords to a single image. For example, if you have a Beach keyword, a Dog keyword, and a Summer keyword, you might assign all three to a photo of your dog taken at the beach ...