When you're writing a post or editing an old post, click Labels on the side and enter the labels you like, separating them with commas. Labels you've used before will show up below, and you can just click them to add them to the post.
You can place single words or longer phases in the box; whatever you choose to write there, should reflect what your post is about. When you publish your post, the labels will be listed with it.
Clicking any of the labels will take you to a page containing only posts with that label. This gives readers an easy way to navigate your blog based on categories.
If you want to display some or all of your labels on the sidebar, you can make use of the Blogger "Labels" gadget.
If you want to add a label to more than one post at a time, you can read : how to group blog posts into labels (categories).
NOTE: Labels are case sensitive. It's preferable to type your labels in small letters.
I hope this helps.