From the Gmail blog:
One of the features that makes Gmail different is its use of labels instead of folders. Sure, labels can serve pretty much the same purpose — they can help organize mail or flag messages for follow up. And unlike with folders, messages can have several labels, so if I get an email from a friend about a trip we’re taking together, I can add both a “Friends” and a “Travel” label to it.
But it’s not always obvious how to use labels, especially for people who are new to Gmail and used to using folders, and it hasn’t helped that some common tasks have been more complicated than they should be. For instance, to move an email out of your inbox and into a label you first had to apply the label using the “More actions” menu and then click “Archive.”
Starting today [Feb 3], the buttons and menus at the top of your inbox will look a bit different:
Instead of having to first apply the label and then archive, you can just use the “Move to” button to label and archive in a single step — just like you would with a folder. If you just want to add or remove a label, use the new “Labels” button. Auto-complete works, so for those of you with a lot of labels, you can select the one you want just by typing the first couple characters.
(HT: Glenn Brooke)