User profile labels are feature that allows you to better categorize and and organize your list of users. Once labels are applied they can be used to filter and sort from the people tab and the students tab.
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There are three different permissions that apply to Labels.

The ability to create labels is controlled by the Manage Company Settings permission.
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The Add and Manage Profile Labels permission allows users to add or remove labels from users' profiles
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Users must have the View Labels permission to view any labels. The labels each role is allowed to see are controlled in the label settings (see below)
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Navigate to: Settings>Users>User Profile Labels

The first time you visit this page you will need to create a category. Categories are a way to organize and color code your labels.
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Once created you can create labels within the category. Each label has its own settings for visibility to certain roles. This allows you to set potentially sensitive labels to be visible only to roles who need to see them, while allowing more general labels wider visibility, even within the same category.

Anywhere you can see a label you can add additional labels, remove labels, or create new labels, provided you have the required permissions. Labels can be managed from the User Profile, the People List, the Students List and a student's training overview page. Labels can also be managed by going to a user's profile>Account Settings>Edit Profile. Users with permission to add/manage labels will have access to labels set to be visible to their user role.

You can add a new label while adding/editing existing labels by simply typing the new name and then clicking "+Add.".

When adding a new label outside of the Company Settings, you will be able to select from existing categories, but you will not be able to create a new one, this must be done in Company Settings.

On the People and Students tabs you can filter the list by labels applied to users. You have the option of And/Or filtering to find users with a specific combination of labels or any user with a certain label applied. Users will only be able to filter by labels visible to their assigned user role