Creating Office 356 labels is a two-step process. The first step is to create the actual label which includes the name, description, retention policy, and classifying the content as a record. Once this is completed, the second step requires the deployment of a label using a labelling policy which specifies the specific location to publish and applying the label automatically.
To create an Office 365 label, following these steps:
1. Open Security and Compliance Centre;
2. Click on Classifications;
3. Click on Labels;
4. The label will require configuration including: name your label (Name), add a description for the admins (Description for Admins), add a description for the users (Description for Users);
5. Click Next once the configuration is completed;
6. Click Label Settings on the left-hand side menu;
7. The Label Settings will need to be configured. On this screen, you can toggle the Retention switch to either "on" or "off". If you choose "on", then you can answer the question "When this label is applied to content" with one of two options. The first option is to Retain the Content. From the pick boxes, you can choose the length of retention and upon the end of the retention, the action that will take place. The three actions are to delete the data, trigger an approval flow for review, or nothing can be actioned. The second option is to not retain the data after a specified amount of time or based on the age of the data; and
8. The label has now been created.
To create a label policy, follow these steps:
1. Open Security and Compliance Centre;
2. Click on Data Governance, Retention;
3. Choose Label Policies box at the top of the screen; and
4. There are now two options. The first is to Publish Labels. If your organization wants its end users to apply the label manually, then this is the option you would choose. Note that this is location based. The second option is to Auto-apply Labels. With Auto-apply, you would have the ability to automatically apply a label when it meets the specified criteria.
Reference:
https://www.maadarani.com/office-365-classification-and-retention-labels/

Reference:
https://docs.microsoft.com/en-us/microsoft-365/solutions/groups-naming-policy?view=o365-worldwide

Reference:
https://docs.microsoft.com/en-us/microsoft-365/compliance/sensitive-information-type-entity-definitions?view=o365-worldwide