Storage tiers involve categorizing data into different levels based on importance and usage patterns to optimize resource utilization. There are typically hot, warm, cool, and cold tiers where hot tiers provide high-performance storage for critical and frequently accessed data at a higher cost, and cold tiers are for long-term archival with minimal access needs and lower costs. Storage tiers provide benefits like optimized resource allocation through efficient storage of data based on its characteristics, cost efficiency by storing less critical data lower cost tiers, and performance enhancement by providing high-performance storage to critical data.