I have been very curious about how GMail will handle the inherent conflict of labels and folders when they roll out their new IMAP service. The idea of labeling or tagging mail (and then moving it all to a common archive) is pretty much the opposite of the traditional file-an-email-into-a-folder model. The difference is that the former model allows for a single message to be categorized by multiple categories and the latter latter only supports one category, the folder that the message is filed into.
Thanks to MacDerm and Warren for sending me these links explaining how GMail will handle the process:
Executive summary: when you file a message into a folder in your IMAP mail client, the message will be tagged with the name of the folder. To tag a folder with multiple lables, you have to make copies of that message into multiple folders.
I guess this only matters if you would manage your mail through both the web interface and an IMAP client.