When you type text replace shortcuts a snippet preview appears near your typing cursor.
The snippet preview is a preview of the text that will be typed for you if you hit TAB.
A label is simply a way of changing what is shown in the preview to something else. It doesn't change the snippet or the text that gets typed out, just what you see in the preview.
To add a label just click on the label icon to the right of your snippet:
The Label Window will open. Check the 'Show label' box, type in your desired label, and click OK:
The label icon to the right of your snippet will now be highlighted to indicate that it is 'on':
Labels are always optional but can sometimes help to make your snippets more clear and quicker to identify.
For example, if you have multiple snippets that all start with the same text, the preview won't be able to distinguish between them:
Adding labels allows you to easily pick the correct one:
Even single snippets can sometimes be clearer with labels.
Labels don't change any functionality, they are just there to make things easier and quicker to understand.