Official Gmail Blog: Labels: drag and drop, hiding, and more
Finally Gmail is improving the label facility. I like the idea of tagging my emails, but previously it was quite awkward when you got too many labels. There was no way to hide labels for old projects or to make commonly used labels more accessible.
I'm guessing they imagined people would have a handful of labels, similar to the handful of built-in ones. But look at any tagging system, like Delicious or Flickr, and you'll see large numbers of different tags, not just a few.
There were workarounds like renaming labels to move them up or down the alphabetical list. Or addons like Gmail folders (which tended to break when Gmail made changes).
The drag and drop is nice, but to me the big improvement will be the ability to hide old labels and to normally only show the frequently used ones.