The new Google Docs
Google recently added new features to their Google Docs, they also gave it a visual overhaul.
As you can see the layout is different. It appears to be much easier to follow, there are new icons, and they renamed the famed "labels" to "folders".
Making a folder:
Making a folder is a rather simple process, that almost anyone can follow. 
Step one: Click on the "New" button on the top, and click on "Folder".
Step two: Notice the large writing area that now appeared, that is where you write the folders name.
Step three: Add an optional description or status to the folder. This will show up when you click on the folder. Though I just prefer a descriptive name.
Just a quick note, you can not make sub-folders.
Managing your documents:
You can sort your documents into folders in two ways, either by dragging the document to the appropriate folder, very similar to how you would on any modern desktop, or by manually assigning the document to a folder, just like you did when things were called "labels" rather than "folders".
Dragging your document:
This is by far the easiest way for a novice user to file their documents, it is quick, has great visual feedback, and allows you to move a document from one folder to anther with great ease. If I have a document that only belongs in one folder, than this is how I would handle it.
One of the great features of Google Docs, is the ability to have a document with two different labels (now called folders), but that is not possible when you are dragging and dropping a document into folders. When you drag a document to a different folder, it will remove any associations it had with other folders. For example, say I had the document "Kama Sutra for Dummies" in both my "Personal" folder and in the "Recreation" folder; but I wanted to add it to my "Woohoo" folder, if I dragged the document to the "Woohoo" folder, than it would no longer be in my other two folders. You can avoid this by:
Manually assigning the document to a folder:
As you can see, by checking the document, then clicking on the "Add to folder" button, I can assign a document to two or more folders. This is exactly how the previous version of Google Docs functioned with labels.
This is much more powerful way to sort your documents. This allows for a document to be in two different places at once. Take my "Kama Sutra for Dummies" example from above, if I add the document to the "Woohoo" folder in this manner, than I can access it from any of those three folders. Hopefully Google will get the point where you can search for documents that reside in multiple folders, to help narrow down your results.
