- nested labels: You could create a nested label (like a subfolder) by adding slashes in folder names. You would create two folders called "Parent/ChildA" and "Parent/ChildB", and they would be displayed as "ChildA" and "ChildB" underneath a single "Parent" that you could collapse and expand.
- show-if-unread: Only labels that had unread messages in them would show up in the left bar. To see all of your labels, you could use the "more" link which would show you a full list.
However, eventually both labs features became integrated into production GMail, and they messed it all up. Now, ostensibly to avoid revealing the slash form and to avoid having parent labels repeated in both the unread and read lists, they've made it impossible to apply show-if-unread to nested labels. Consequently, if any nested labels have unread messages in it, the parent and all of its nested labels show up in the unread list. So you get things like this (click for larger):
So Google has gone from taking two nice features and combining them into one terrible and useless and awful thing.