Answer: There are a few considerations of term sets vs choice lists:
1) Do I want to be able to associate synonyms to a term?
2) Do I need to translate terms?
3) Do I want to have the terms organized in a hierarchy?
4) Do you want to share the picklist across libraries or sites?
5) Do you want to make changes to a shared list of terms and have those changes populate everywhere the set is used?
If your answer to any of these is yes, then you should use a term set instead of a pick list.