Custom labels allow you to provide additional details about a product on your feed that are not shown to customers. With Shopping campaigns, you can use these custom labels when you want to subdivide the products in your campaign using values of your choosing. For example, you can use custom labels to indicate that products are seasonal, on clearance, best sellers, etc. These values can then be selected to use for monitoring, reporting, and bidding in your Shopping campaign.
The main benefit of custom labels is the ability to further optimize your ad campaigns without creating distinct feeds or manual searching and filtering. With custom labels you have the ability of more granular bid modification and reporting. A few examples of ways to use custom labels include:
Product attributes like size, material and color
Product categories like brands, teams or leagues
Sale or overstock items
Pricing groups (ex: under $50, over $50)
To learn more about custom labels in Google Shopping campaigns, checkout their support docs.