Classification plug-in controls the iterations and structure of the TFS projects. It is also known as Microsoft.ProjectCreationWizard.Classification and consists of XML file stored under Classification.xml name. This file is located under Classification folder in the process template folder.

Classification is responsible for defining Iterations which are used to determine now many times team will repeat of development process from start to end. This is part of iterative development model that goes in cycles though all of the project stages. Each iteration will have a label in TFS and classification helps in setting those labels in the XML file.

Itertation appears in the System.IterationPath System field on any of the work items that have this field and is set within XML element called Node.
<Node StructureType="ProjectLifecycle" Name="Iteration number" xmlns="">

Areas are used for tracking groups within Team Project. Groups come handy when we want to report on the work items with the help of Work Item Queries or SQL Reports. We can use Areas to mark work items related to client side area, server area, database area and etc… Areas are set within Node element with the StructureType identified as ProjectModelHierarchy.
<Node StructureType="ProjectModelHierarchy" Name="" xmlns=""></Node>

While modifying Iterations or Areas we have to make sure that any existing references to Iterations or Areas are not being broken for existing work items in the workitems.xml file.