Since GMail uses Labels, instead of Folders, which many users were not used to, Labels were not used much initially.
1. You need not hide the email message from inbox, if you want to categorize a email message.
2. Adding multiple categories to a single email message was never possible.
Even though Labels have these advantages, users liked the traditional Folders in email.
For attracting users, Google added a button to GMail, called “Move to”, which simultaneously applies label, as well as archives the message. This gave a feel like moving to Folders, but still having the pros of Labels.
Until few days back, a list of labels were appearing below chat box.
Now, these links for Labels have moved above Chat Box, and you also can Drag and Drop emails into Labels.
This hopefully will attract more users to use labels.