What is difference between labels and folders in Gmail?

There is no difference between labels and folders in Gmail. Labels are the version of folders. Labels are the folders. You create new folders in Gmail that you can store your important and favorite emails in the particular folder.  

Labels are the name that Gmail have specified for the folders. You can create many folders in your Gmail account. Sub holders can also be created in Gmail. 

You can edit or delete your label. You can view you all important mails which you have added in your label. If you delete the label, your mails will be safe.