You just type the new name for a tag direct into the tag field, they are dynamic. This means if you already have a Tag called 'Food' and you later add a tag called 'food' you will have two tags! Existing tags can be selected from the drop down list in the tag field.
The only way to sort out similar tags is use the 'Find & Replace' extension, search for the one you don't want and batch change all the entries to the one you DO want! So, search for tags with 'food' and replace all with the tag 'Food'.