When reporting a bug, it is helpful to report the version of the software where it occurred. This might be a shipping version (e.g "2.0 with service pack 2") or it may be a development version ("the build that Janet gave me on 9/5/06", "today's checked in build", etc.).
Every case in FogBugz has a field called Version, which can be used to track this. There are probably a lot more versions than milestones; many programming shops have builds every day and it is helpful in reporting a bug to indicate exactly which build it was found in. That's why the Version field is just free-form text.
What's the difference between Versions and Releases?
You can also add as many custom fields as you need of various types (e.g. drop-down menu, number or date) by installing the Custom Fields plugin.