To add, rename, or remove labels, click the edit (pencil) icon next to Labels in the left sidebar.
This opens the Manage Labels window. To add a label, type its name in the New Label Name field and click Add Label.
Once a label exists, hover over it to reveal the rename (pencil) and delete (trash) icons.
Clicking delete asks you to confirm. Once you delete a label, it is removed from every document it was applied to.

