CEF switching is the only IP switching mode that you can use to label packets. Other IP switching modes, such as fast switching, cannot be used, because the fast switching cache does not hold information on labels. Because CEF switching is the only IP switching mode that is supported in conjunction with MPLS, you must turn on CEF when you enable MPLS on the router.
The local label (or tag) is the label that this LSR assigns and distributes to the other LSRs.
If this LSR receives a packet with top label 16, it removes all labels and forwards the packet as an IP packet, because the outgoing label (tag) is Untagged.
The incoming label 23 is swapped with label 20, and label 16 is pushed onto label 20.