In terms of Taoist cosmology, the circle represents Tao - the undifferentiated Unity out of which all of existence arises. The black and white halves within the circle representYin-qi and Yang-qi - the primordial feminine and masculine energies whose interplay gives birth to the manifest world: to the Five Elements and Ten-Thousand Things.
Yin is the black side with the white dot on it and yang is the white side with the black dot on it. The relationship between yin and yang is often described in terms of sunlight playing over a mountain and in the valley. Yin (literally the 'shady place' or 'north slope') is the dark area occluded by the mountain's bulk, while yang (literally the 'sunny place' or 'south slope') is the brightly lit portion. As the sun moves across the sky, yin and yang gradually trade places with each other, revealing what was obscured and obscuring what was revealed.