Forum Discussion
Unifiled labeling for SharePoint as a container and external sharing
Little bit more digging, and this article - https://joannecklein.com/2020/06/19/site-sensitivity-and-the-documents-within/ explains how it all works brilliantly!
Nip17 At the moment the sensitivity labels for containers (SharePoint/ Teams) only provide controls that manager the container and not the content.
They can be useful if you want to restrict guest access to specific Teams only or enforce access is only from managed devices.
The labelling of content needs to be added separately.
Note that if you already use sensitivity labels for content and then decide you want to be ale to provide more granular levels of control to a Team using sensitivity labels (such as creating internal only and guest allowed) these labels also appear when labelling content