Being able to distinguish the good of something from the bad as far as quality and excellence is concerned (i.e. music, clothes). Often people accuse others of having bad taste simply because they don't comply with the masses of automatons who listen and wear the same stuff so as not to be looked down as having "bad taste." It's all a bit of a double-edged sword.
Taste is the measuring stick for how "in fashion" you are to the current fad.