When the code is parsed by ctags it generates a file called tags. This file includes locations of all functions, methods and so forth. By clicking the tags tool button a dialog will appear asking which directory to search through and whether to recurse into subdirectories.
After building the tags file the tag docklet has several (programming language specific) category entries with tag subentries. On clicking a tag entry in the docklet, the cursor is positioned at the location of the tag in the file where it is defined. Alternatively a selection can be used as a tag: click the right mouse button to bring up the context menu, and select "Find Tag".