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Gmail is also adding "hiding" to labels to prevent them taking up too much sidebar space: your most-used labels will show there, but you'll need to hit "more" underneath the box to see them all. You can decide which labels to show or hide in the settings.
For the first time, however, Google is also killing a Gmail Labs feature: "Right side labels", which allowed you to move your labels to the right sidebar to get them out of the way, is no more. Google argues that it's not needed with the new space-saving "hide" feature. It's a sign for caution among Gmail users: don't get too reliant on Gmail Labs features, because Google can take them away at any time.