Categories and Tags are treated exactly the same way by search engines. There is a means of converting Categories to Tags and visa versa. Go to Posts > Categories and scroll down to the bottom of the page.
Deleting a category does not delete the posts in that category. Instead, posts that were only assigned to the deleted category are set to the category ______default category______
Categories can be selectively converted to tags using the category to tag converter. http://shoreacres.wordpress.com/wp-admin/admin.php?import=wp-cat2tag