It sounds like you need to set up a product display, with fields for taxonomy.
Each product in a Drupal Commerce store has an entity for each SKU number. And each product has it's own display for the item. This allows you to reference multiple SKU's with the same display (Say for instance 3 different sizes of the same shirt)
So, to walk through quickly on how to create a product and have it display on the site.
- Navigate to http://yoursite.com/admin/commerce/products and create your product.
- Make sure you have a product display type that references the product in the store.
- You can do this by navigating to http://yoursite.com/admin/structure/types. You should see the default types that come with Drupal. These include Article and Basic Page. You will need to create a new type called "Product Display" (You can really call it whatever you like).
- This new Product Display type will need to have at least one field that is of type "Product Reference" and for your instance, you will want to create another field that is of type "Term Reference" (This refers to the taxonomy term that you want for the product)
- With this new Product Display type, you can now create a new piece of content (or node) that is of the type Product Display. So navigate to http://yoursite.com/admin/content and create a new piece of content. (You can quickly do this by going to http://yoursite.com/node/add)
- Create a new piece of content with your Product Display type. Here you will be able to select your taxonomy term and the product SKU number that the Product Display references.
- In order to have the path for the taxonomy term link to the product, you will need to set up URL Aliases. You need to have the PathAuto module installed, it requires the Token module as well, so grab both.
Now, there is a major bug in the token module, which is also a major bug in Drupal 7 when it comes to tokens and paths for taxonomy terms. There isn't a token for the entire path of a menu tree.
You can look at these issues:
BIKESHED: Token for a term or menu item's entire tree/hierarchy
Equivalent of "menu-path-raw"
for some more information on it and some ideas on how to overcome this problem.
For Drupal Commerce most of the early configuration is already done for you if you use an Drupal Commerce Installation Profile. You can install Drupal + Commerce with all of these fields already set.