I think one simple change would make a world of difference without 'dumbing' anything down. As was mentioned before, the most confusing thing is the word 'vocabulary' since it's not obvious, even if you know figure out that taxonomy is way of categorizing things, what exactly a vocabulary is.  So just change vocabulary to either 'category type' or 'category group', then we have a much more clear breakdown of:

taxonomy -> categories
vocabulary  -> category type (or category group)
term -> category (or term)

Karen