Search Engines are often reported to penalise you for having duplicate content on your web pages. This can be a problem especially when using dynamic parameters in your URL's as your rankings can be negatively affected if you don't do something about it. This is where the "Canonical" tag comes in to help.
What is the "Canonical" tag?
The "Canonical" tag is a <link> tag that you can use to tell the various search engines what your preferred version of a URL is.
Why should I use the "Canonical" tag?
You should use "Canonical" tag to publicly show your preferred version of a URL as well as help the search engines consolidate link popularity to your preferred version. You should also use it to make sure you are not penalised for having duplicate content on your website.
When do I need to use the "Canonical" tag?
You should use this tag whenever you have pages that are practically identical, but can be accessed from different URL's. For example, images you have a shop on your site that displays products from a range of different categories. In one case you may have a LCD Television that comes under the category of Electronics and LCD, and any of these URL's will take you to the product page of a particular model:
If a user or a search engine visits any of these URL's the content of each page will br practically identical (maybe barring a breadcrumb trail with the category in it). At the moment a search engine may look down on this approach as it sees that you have multiple pages all with exactly the same content, even though you know there is a valid reason for this.
Where can I find more information on the "Canonical" tag?
The Google Webmaster Central blog has a post with more information on the subject as well as pointing out that other search engines such as Ask, Microsoft Live Search and Yahoo! also have blog posts on the subject.