Words are important in activism. It's not just about saying the right things, or explaining things in the right way, it's also having the right words to describe what it is you're talking about. That's why I made the (probably futile) effort to coin the term gnostivism. Words can be harmful but they can also be helpful in mitigating harm. Identity labeling is considered by some to do more harm than good, and I really disagree with that. So I'm going to try to explain why I see it as beneficial, at least for right now.
The main argument against identity labeling is that it only serves to divide people. There is a certain notion amongst particular groups of progressives that by eliminating all distinctions between people we'll be more likely to treat each other equally as human beings. This is a fairly positive idea all by itself, and isn't a bad thing to want to work toward, depending on how one does that work. I would say that, in fact, I do believe that in an ideal world identity labeling will be de-emphasized and people would be allowed to just be people, in whatever way they happen to express that. However, jumping to the elimination of labels in any situation short of an ideal world can lead to a lot of problematic responses to real world issues.