Labels are a powerful feature in µTorrent. They can be used for simply labeling your torrents to identify them, or to use for sorting the torrents more easily. For example, you could label your torrents from private trackers as "private", and then click on the Labels column to easily sort all your private torrents. You can select one torrent or more than one to apply a label.
Simply right click on the torrent(s), go to Label, and click "New label..." to add a label, or select an already existing label. This can be done regardless of it a torrent already had a label.
To remove a label from a torrent, right click the torrent, Labels -> Remove Label.
Unused labels are automatically removed from the list.
If you would like labels that never disappear, you can add persistent labels in Advanced -> User Interface.
The benefit of normal and persistent labels is that they can be used in tandem with "Move completed downloads to" in the Folders section. If you check "Append the torrent's label to the directory name", the label is used as the subdirectory name for finished torrents with that label.