To begin, let's create a top-level, or parent, label. In our case, we'll create a label named Projects, since we have a lot of different projects to associate messages with.
One way to create a label is to click the More link in your label list. The list expands, where you can click Create new label. A window then pops up where you can type the name of your label. Since it's a parent label, don't check the "Nest label under” box.
Create a nested label
Now let's create a label nested under Projects. Again, you can do this in a few ways, but easiest is to point at the Projects label and click the down-arrow that appears. This opens a menu where you can choose Add sub label. A window pops up where you type the name of the label. Since we're making a sub label, Gmail has already selected the option to nest the label under Projects.
Nest an existing label
Creating nested labels is easy enough. But how do you nest an existing label? Let's say you want to nest the Hanes label under Projects. Simply point at the Hanes label and click its down arrow. Then click Edit. In the window that opens, check the Nest label under box and choose Projects from the list.
Or as a shortcut, simply type Projects/Hanes and Gmail will nest the Hanes label in Projects for you.
You can nest as many labels as you want, and down to any number of levels. Then expand and collapse your labels by clicking the arrow at the left of the label. Here, we've nested a few labels under Projects, then nested a few more for the Hanes project.
Open your Labels settings
You can also create and manage labels by going to your Gmail Settings and opening the Labels tab. There you can create and nest labels, rearrange them, and much more!