Gmail's labels are similar to folders, but not quite the same. As you probably know, there is no such thing as “sub-labels” – all labels are at the same level, which can be a little tricky as we transition from a system of sub-folders. However, the tradeoff is that you can assign multiple labels to a message and thereby keep a message in multiple categories. The message shown below has the "Follow up" label as well as the "Projects" label.
To apply a label to a message, checkmark the message, then go to the Labels drop-down menu and select a label.
To create a new label, checkmark a message that should receive the new label, then click the Labels drop-down and type in a new label name. Another method is to click the Labels drop-down and then click Manage labels.
Be aware that applying a label does not remove the message from the Inbox. To remove the message from the Inbox, it must be archived.
Archiving simply removes an email message from your Inbox - that's it. It doesn't mark it for deletion or remove labels; it just takes it out of the Inbox. If you like to keep your Inbox clean, you’ll need to use archiving. To archive a message, checkmark it, then click the Archive button.
Archived messages are available by clicking All Mail. As the name suggests, All Mail is all of your mail – archives, inbox, sent items, deleted items – everything. If you don't see the All Mail section it may be in the "more" drop-down on the left side of your screen. Keep in mind, that if the message has a label, it can also be found by clicking on that label - archiving doesn't change that. The other way to find archived messages is to search.
Labeling and archiving in single step is a lot like moving a message to a folder - it takes the message out of your Inbox and categorizes it at the same time. There are a couple ways to do this. The first option is to checkmark a message, then use the Move to drop-down. The second method is to drag the message to a label - to drag, click and hold on the dots on the left side of the message.
You can determine which labels you see on the left of your Gmail screen. This is useful if some of the labels you need are hidden in the "more" dropdown or if you have too many labels listed. To manage, click Manage labels (which may be hidden in "more"). Then, use the show and hide link next to each label to indicate if you want the label to appear on the left side of your screen.
If there's a label that you don't need anymore, you can click remove. Removing a label does not delete the emails to which the label was applied. It simply removes that label from those emails, and does not remove any additional labels that may have been applied to the emails. If all labels are removed, the emails are only available in All Mail.
You can also show, hide, or delete one label at a time by clicking the down-arrow to the left of that label on the main Gmail screen.