What are labels?
Labels are shorthand descriptions. They are a summary. When we say someone is extrovert, we don't mean that they act in exactly the same way as all other extroverts but we do make assumptions about them. Of course, being a summary, we may all have different ideas of what extroversion is and may be making different assumptions.
We often use labels for ourselves and other people. Some labels have a permanence that more nuanced kinds of description do not have. For instance "They are feeling depressed" is very different than "They are a depressive". The first phrase refers to the person's current state of mind. The second sounds like they might always be that way.
Can labels be good?
Labels are not always bad. I know multiple people who struggled with chronic physical or emotional conditions and who did not feel like they were taken seriously. Eventually they received diagnoses and the effects were transformative. Suddenly they had a place to stand. They had legitimacy. They also had something to put their energy into; learning about their diagnosed condition and possibly connecting with other people who had a similar diagnosis. Later, some of them would struggle with medical specialists who ignored or minimised the importance of symptoms that did not fit their diagnoses. The label that had been a ledge where they could stop and rest and gather their strength was now a cage to keep them manageable.
People who feel like they are not understood or who feel burdened by other people's expectations can often gain a lot of strength by finding a group with whom they have a lot in common and who support them in being themselves. The members of that group may share a common label. I assume this contributes to the profusion of labels within LGBTQ+ terminology. Many people, including our care-givers, may expect us to participate in this kind of relationship with this type of person and perform these types of courting or friendship rituals. Under these circumstances, a shared identity with a group can be invaluable. It's not just a place to rest, it can be something to hold on to when it feels like the rest of the world is trying to push us in a direction that's not right for us.
Why are labels problematic?
Two aspects of labels interact and together can be very limiting; their over-simplicity and their perceived permanence. These can constrain our own and others sense of ourselves. Imagine someone who finds it stressful to socialise in public. Maybe they invite their friends round and consistently turn down invitations to go out to bars, theatre performances, organised walks and sporting events. Maybe their friends label them as agoraphobic. Then, one day, the same person hears of an event they really want to go to and they arrange to do so. Maybe their friends feel insulted or betrayed because they were "just pretending" to be agoraphobic and now they are "making an effort" for this event but wouldn't do the same for their friends. Or maybe their friends try and talk them out of it. "I think you're taking a big risk. What if you find it too stressful? You should come to my book club instead. We'll look after you."
In this way labels can inhibit our tendency to change, adapt and grow. Growing our awareness of ourselves, and trying new things, can be stressful. We need to feel supported, internally and often socially, to carry on that process of change. Feeling that we will disown or break or betray a label can be a be a big inhibitor to being ourselves.