Link: http://googleblog.blogspot.com/2009/07/evolution-of-gmail-labels.html

Finally - your labels will act more like folders. For me this seems natural, I'm liking this.

For our latest set of changes, we looked at how you access labels on the left side. In other email applications, folders get the royal treatment and are given a seat at the top near your inbox. But in Gmail, labels were stuck in a box below Chat — almost like we were telling people, "you don't want to use these." In testing, we discovered that it worked best to remove the terminology altogether and just place custom labels right under the system labels (e.g. "Inbox"):