Update @ 2013-11-28: You can also consider using Taxonomy Term Reference Tree Widget suggested by kenorb. =D

When you have a hierarchy structure of taxonomy, the default selection list is not quite user friendly because it list out all the parent and child terms. Assume with want to attach a country and city terms to the Article content type. The most straight forward way is create one vocabulary with some countries as parent terms and some cities as child terms like the following list.
  — England
    — London
    — Manchester
  — France
    — Lyon
    — Paris

It turns on that when someone is adding a new article, he may select either a country term or a city term. That is probably not what we want.
Continue reading Drupal 7 – Reference field option limit for hierarchy taxonomy →