Why is labeling a cognitive distortion? How is it different from categorization? Is there any difference between label and category? We use categories everyday. Psychiatrists use it too. Aren't psychiatric disorders like schizophrenia or bipolar disorder just labels that are assigned to specific disorder cases that patients have?
Isn't &quot;labeling&quot; itself a label? People have some thoughts, but some of them are labeled as &quot;labeling&quot;.
If I say that the bird I see is a pigeon, this is labeling as well. But I don't think that saying that the pigeon is a pigeon is a cognitive distortion.
Sorry, I am not a psychologist. But my psychotherapist said me that I assign labels to person and their actions. But I don't understand what it means and why it is bad.
As Bryan Krause suggested (above), talking with your psychotherapist is likely the most important next step for you to take.
Also, please note that what I write below is simply general information about cognitive behavioral therapy. I do not know your situation. What I share with you here is not personal advice. It is information only.
You might find it helpful to read more about cognitive behavioral therapy (CBT) because it might answer at least one of your questions, which I will paraphrase as: Why are cognitive distortions potentially harmful?
Brief answer with an example
What you think (assumptions, beliefs) about yourself and the world greatly influences what you do (behavior) and how you feel (emotions). Our minds often distort reality by &quot;telling&quot; us untruths, which in turn lead us to feel and act differently.
Example: I'm a college student majoring in psychology. I studied reasonably well for a statistics test, but I received a &quot;B-&quot; grade. My friend received an &quot;A&quot;. I immediately think, &quot;I'm not smart enough to be a psychologist.&quot; I subsequently don't study as hard and I start thinking about changing to an &quot;easy&quot; major. I feel down and start to smoke weed every day to feel better, which causes me to feel even less motivated.
Thus, according to cognitive behavioral theory, my negative (distorted) thoughts about the &quot;B-&quot; grade led to a downward spiral of maladaptive behaviors and depressed mood.
Very brief history
[Edit of 17 Dec 2020: Thank you to tale852150 for calling attention to my egregious and baffling omission (see the Comments, below). I added this section about Albert Ellis because Ellis was indeed the first cognitive-behavioral theorist and clinician.]
Albert Ellis (1913–2007)
In the mid-1950s, Albert E. Ellis, Ph.D., developed the first systematic cognitive therapy, which he originally called &quot;rational therapy&quot;, with the therapy approach evolving, the name changed to &quot;rational-emotive therapy&quot; (RET), and finally, &quot;rational-emotive behavior therapy&quot; (REBT). This book chapter provides a concise, yet complete overview of REBT:
Dryden, Windy, Daniel David, and Albert Ellis. &quot;Rational Emotive Behavior Therapy.&quot; In Handbook of Cognitive Behavioral Therapies, 3rd ed., edited by Keith S. Dobson, 226–276. New York: Guilford, 2010.
And here are few representative samples of Ellis' publications:
Ellis, Albert. &quot;Rational Psychotherapy and Individual Psychology.&quot; Journal of Individual Psychology 13, no. 1 (1957): 38-44.
Ellis, Albert, and Robert A. Harper. A New Guide to Rational Living. Englewood Cliffs, NJ: Prentice-Hall, 1961.
Ellis, A. (1962). Reason and Emotion in Psychotherapy. Secaucus, NJ: Lyle Stuart.
Ellis, Albert. &quot;Rational-Emotive Therapy and Cognitive Behavior Therapy: Similarities and Differences.&quot; Cognitive Therapy and Research 4, no. 4 (1980): 325-340.
Ellis, Albert. &quot;Changing Rational-Emotive Therapy (RET) to Rational Emotive Behavior Therapy (REBT).&quot; Journal of Rational-Emotive and Cognitive-Behavior Therapy 13, no. 2 (1995): 85-89.
Aaron Beck (1921– )
Aaron Beck, M.D. developed &quot;cognitive therapy&quot; in the early 1960s. One of his first breakthrough articles was:
Beck, Aaron T. &quot;Thinking and Depression: I. Idiosyncratic Content and Cognitive Distortions.&quot; Archives of General Psychiatry 9, No. 4 (1963): 324–333. doi:10.1001/archpsyc.1963.01720160014002
Helpful articles
John M. Grohol, &quot;15 Common Cognitive Distortions&quot;, PsychCentral (24 Jun 2019). Here is a quote from Dr. Grohol's article:

What’s a cognitive distortion and why do so many people have them?
Cognitive distortions are simply ways that our mind convinces us of
something that isn’t really true. These inaccurate thoughts are
usually used to reinforce negative thinking or emotions — telling
ourselves things that sound rational and accurate, but really only
serve to keep us feeling bad about ourselves.

Cherry, Kendra. &quot;What Is Cognitive Behavioral Therapy (CBT)?&quot; verywellmind (13 June 2020). This is a quote from the article:

Cognitive behavioral therapy focuses on changing the automatic
negative thoughts that can contribute to and worsen emotional
difficulties, depression, and anxiety. These spontaneous negative
thoughts have a detrimental influence on mood.

Note that &quot;automatic negative thoughts&quot; and &quot;cognitive distortions&quot;, as used by most psychotherapists, have very similar if not identical meanings.
Best-selling book
The top-selling cognitive behavioral therapy book on Amazon.com currently is:
Gillihan, Seth J. Cognitive Behavioral Therapy Made Simple: 10 Strategies for Managing Anxiety, Depression, Anger, Panic, and Worry. Emeryville, CA: Althea Press (Callisto Media), 2018. (Amazon rating/reviews: 4.6 stars; ReviewMeta: 4.6 stars)
I haven't read Gillihan's book, but a ReviewMeta rating of 4.6 based on 97 reviews suggests it's been helpful to most people.
Of course, there are scores of good online articles and books about cognitive behavioral therapy. The ones I mentioned are just a select sample to (hopefully) get you started learning more.