I've just done a reinstall and haven't tried it since, but just before that, I found that sorting by label produced an order that was completely unappropriate and unexplainable. It was almost the same as sorting by name, regardless of label, but not quite. I assumed it was something messed with preferences....
Just tried it now. I have a folder containing two folders labelled 'Purple' (which should really be pink from the contextual menu!), one Excel file labelled 'Orange', one Word document labelled 'Orange' and one Word document labelled 'Gray'.
Sorting by label has made the order: first purple folder, orange excel, second purple folder, orange word, gray word.
So it's still rather odd! I would have expected to have had the orange labels first, then the purple and then the gray!