Sensitivity label in Microsoft 365 classifies and protects data in your organization with its ability to stick onto Office files as content markings and encryptions. It is easy to define and stays with your data wherever they are. For example, you can create a label named 'Top Secret' and apply it to your most important document manually or configure it to get applied automatically when the condition matches.
Security settings such as watermarks and other encryptions configured for the label travel with the Office files both in and outside your organization. Most of us may or may not be aware of this super useful security feature. But what's new is its inclusion in the sharing dialog experience for Microsoft apps such as SharePoint and OneDrive. Thus, allowing users to see whether the file is labeled and know its importance before sharing them.
For more detailed information, please check out the following blog.
https://blog.admindroid.com/microsoft-365-sensitivity-labels-in-the-sharing-dialog/
