Taunting does just about as much damage to a person's psychological well-being as physical bullying does, if not more so. At least if a person is physically bullied, s/he can fend off her assailant(s) or retaliate with a kick or whatever if someone physically bothers him/or her.
When verbal taunting occurs, however, one cannot physically haul off and sock somebody without some sort of nasty legal ramification, so taunting can hurt just as much, if not more, at least for that reason.
There are some exceptions to the idea that taunting is bullying. Schools often make exceptions or turn a blind eye to taunting in the spirit of sports competition. I feel like this is still bullying, it it just accepted because it has been the norm for so long. However, if you were to speak to a person in a similar manner it would clearly be defined as bullying.
Taunting is a common form of bullying. Words can have an even more lasting effect than physical violence sometimes. Repeated taunting can cause severe depression and anxiety issues. The self esteem of the taunted can diminish because of it. It can cuase fear and pain. It is something most people deal with at some point.