This window works together with the search results and the selected tags window. The narrow down let's you select certain tags to limit your results to the ones tagged. This makes your search more flexible as you can juggle the results around. For example you choose "red" tag to see all the red ballons, shirts and ties. Then you can select "ties" to see all the red ties. Then you can deselect tag "red" to see the ties avalable. This is fun to play with.
You can click on any of those tags to see how the results narrow down to a fewer.