Labelling is a powerful tool to try to understand something that you can't seem to understand. Like fear. Give a name to your fear, and that name will help you set bounds to that fear. And once you realize that that fear has bounds, you begin to realize that it can be tamed.
When kids are taught anything, it's generally taught in the form of good and bad. Eg: good to help yourself at the table, bad to take more than you can consume. "Good" and "bad" are labels here. In some cases there's probably a super-elaborate trail of thoughts that rationalize the label in the mind of the parent (or teacher, etc.), but all the kid sees is the label either because the rationale wasn't shared with the kid or because it's hard to. Now it's the kids job to identity patterns, and over the years learn to label things by themselves.
I came across this podcast episode on The World in Words hosted by Nina Porzucki with a guest Debbie Nathan (and Bert Vaux) called Do you have an accent? These are the words to try in which they bring up the idea of having a prescriptivist approach (this is how this word is pronounced/used) versus a descriptivist approach (this is how you could pronounce this word) to language. A prescriptivist approach is only good as a teaching tool.
This is the problem with labelling. It reduces "things" to mere labels. It encourages people (not speaking of kids here) to correlate the "thing" to a label often dismissing the rationale behind it. Even when the rationale is not entirely dismissed, it's only used as a supporting argument for the label and is rarely open to be challenged.
Lastly, when the "thing" being labelled is a person, it only gets worse.