MPLS enables packets to be forwarded based on labels rather than IP addresses. PE routers add labels to incoming packets and remove labels from outgoing packets. P routers swap or pop labels to forward packets. MPLS with L3 VPN allows private networks in different locations to communicate securely over a shared infrastructure by associating routes with virtual routing instances (VRFs) and advertising them using BGP. An example configuration shows VRF and BGP configuration, along with commands to view MPLS label bindings and packet forwarding information.