What are Labels?
Labels are a feature found exclusively in Gmail. It's more or less the same as the Folder feature found in other web mails like Yahoo! Mail & Hotmail, but definitely simpler & quicker to use.
It is a simple way to set up links to find your emails quickly, and this system is used in conjunction with their Archiving system.
How do I setup a label?
To set up a label, check the box next to the mail you want to label. Then go to the drop-down menu and click "Add New Label". Type the label name into the pop-up. Now you will see a green box on your lower left listing all the labels you have made. Click on it to find all emails with a given label.
You can use the operator label: in your filters or searchings.
For example, label:saved shows the email that you marked with a tag called saved.