Understanding Classifieds organization

Hi,

I’m really struggling with what is likely a very simple concept but for some reason, I don’t get it. I can’t figure out how, or when, or why to use category vs. custom taxonomy vs custom field for organizing classifieds.

Lets say I have a site that offers ads for the sale of Widgets.
And the widgets come in 2 styles, Red and Blue.
And each style can be found by size, Small, Medium, Large.
And then all of the widgets styles and size also have further attributes such as best used for, condition, age, etc.

How would you set all this up?