What is the use of a custom taxonomy?

Taxonomy

Essentially, a taxonomy is a way of classifying data. Typically a taxonomy will have a set of characteristics that is unique to it.

In WordPress by default it has four taxonomies, post tag, categories, link categories,Post Formats. To be obvious, if a taxonomy had the same characteristics as another data type, it wouldn’t be a different taxonomy! Example of those characteristics follow:

  • Post Tag: acts like a label, attached to a post.
  • Category: acts like a “bucket” in which we put posts, are often hierarchical. Posts can live in multiple categories.
  • Link Category: acts like a label, attached to a link.
  • Post Formats: data represent of a post and can be used by theme.

Official Documentation
https://codex.wordpress.org/Taxonomies

https://github.com/WordPress/WordPress/blob/master/wp-includes/taxonomy.php#L24-L150