The tree shows a hierarchical representation of whatever categories you have defined. It's difficult to tell from your screenshot, but that seems to be Shortcuts (I don't know what your using that for), Keywords and Rating. So if you select any particular keyword in the tree, it expands to show a summary of the next level of category—Rating. It appears you have very few ratings set, so in most cases all you see is "Unassigned." That may seem pointless in this case, but if you had further categories, then the Unassigned branch would expand to show those values. In other words, it's hierarchical, but you don't have to have values set for all categories.
I'm going to assume you haven't yet settled on an organizational scheme for your photos. This is so person and MC is so flexible, I can only outline what I have done for my own. I use the categories Album, Places, People and Keywords.
- I use Album just to organized them into chronological groups—by year, maybe by month, with a few "special" groups as needed. So they might be something like 2009, 2009-07 Vacation, 2009-06 (just because I took a lot of photos in June), 2008-12 Xmas, etc.
- The remaining categories all use nesting. For example...
- Location is generally geographic; I don't travel a lot, so rather than the more obvious Country\State\City sort of scheme, mine is somewhat more specific, including things like Parks\[park name], Homes\[person's name], etc.
- People: Family\[family name]\[name], Friends\[name], Other\[name], etc.
- Keywords are anything else I might want to tag a photo with. Using a logical nesting scheme, they can include a wide variety of different values without becoming confusing. For example, one branch of mine is Animal\[type]\[name]—which I can use to quickly find all pictures of "whales," "cats" or just my cat. I also use it to tag some photos according to photographic style, technique, scene, etc.
So, back to understanding the tree view. If I wanted to view photos of cats using the tree, I would select All Albums\All Places\All People\Animals\Cats. Note "All" includes "Unassigned." If I wanted only photos of cats with no people in them, I would select All Albums\All Places\
Unassigned\Animals\Cats.
Using the tree for this sort of thing is fine for occasional use—but it only allows you to select one value in one category at a time. Using a Panes and Thumbnails view is much more powerful. You can select any number of values in multiple categories, and change them randomly (i.e., just select any values in any panes, and see the results as you do so). I also find pane tagging much more convenient and powerful than using the tagging action window.