The same product can come in several versions: that is a variable product.
Variable products
Take a t-shirt sold in sizes S/M/L and in different colours. You define attributes (Size, Colour), then generate the variations, each with its own price and stock level.
Categories and tags
Sort your products into categories (Clothing, Accessories, and so on) to make browsing easier. Tags add cross-cutting keywords on top.
Tip: a simple category structure helps customers find what they want — and helps search engines too.