People label and group others together to simplify the world and make interacting easier. Labels are a technique the brain has developed to make understanding the complexities of the world easier, although these assumptions are often incorrect or incomplete.
People are naturally social and seek the company of others with similar beliefs and characteristics. Because human beings are very complex individuals, it can take years or a lifetime to fully understand someone else. Labels and groups make this process easier with both acquaintances and strangers, because grouping as a mental technique enables a person to quickly assess the dress, habits and attitude of a person, thereby making assumptions about their beliefs and background. While these first impressions can be misleading and should always be vetted through getting to know the individual, they are immediately useful for assessing the situation and reacting properly.
Labels are essentially memetic ideas that our society reinforces within its culture, such as assuming that a father fulfills a certain role and a mother performs specific tasks, or a liberal thinks one way and a conservative thinks a different way. Labels can be accurate, because their roots are based in truth. However, very few people actually fit all the labels that are applied to them by others, because a stranger has no factual basis for drawing most of their conclusions.