Add comprehensive label usage guidelines to CONTRIBUTING.md

Co-authored-by: mnkiefer <8320933+mnkiefer@users.noreply.github.com>

Author: Copilot

CONTRIBUTING.md

@@ -227,6 +227,120 @@ For detailed guidelines and decision tree, see [specs/breaking-cli-rules.md](spe
 - Ensure all tests pass (`make test`)
 - Test manually with real workflows when possible
 
+## 🏷️ Label Guidelines
+
+### Purpose of Labels
+
+Labels help organize and triage issues for better project management. Use labels to:
+- Categorize issue type (bug, enhancement, documentation)
+- Indicate priority level
+- Mark workflow automation status
+- Identify component areas
+
+### Label Categories
+
+#### Type Labels (choose one)
+- **bug** - Something isn't working correctly
+- **enhancement** - New feature or improvement request
+- **documentation** - Documentation improvements or additions
+- **question** - Questions about usage or behavior
+- **testing** - Test-related issues
+
+#### Priority Labels (optional)
+- **priority-high** - Critical issues requiring immediate attention
+- **priority-medium** - Important but not urgent
+- **priority-low** - Nice-to-have improvements
+
+#### Component Labels (optional, choose multiple if needed)
+- **cli** - Command-line interface
+- **workflow** - Workflow compilation and processing
+- **mcp** - MCP server integration
+- **actions** - GitHub Actions integration
+- **engine** - AI engine configuration
+
+#### Workflow Automation Labels (managed by automation)
+- **ai-generated** - Issue created by AI workflow (Plan Command, etc.)
+- **plan** - Planning issue with sub-tasks
+- **ai-inspected** - Issue reviewed by AI workflow
+- **smoke-copilot** - Smoke test results
+
+#### Status Labels
+- **good first issue** - Suitable for new contributors
+- **dependencies** - Dependency updates
+
+### Label Usage Best Practices
+
+#### When to Add Labels
+
+**During Issue Creation:**
+- Add a type label (bug, enhancement, documentation, etc.)
+- Add priority if urgent
+- Add relevant component labels
+
+**During Triage:**
+- Review and update labels based on discussion
+- Add `good first issue` for newcomer-friendly tasks
+- Set priority based on impact
+
+**Automation Labels:**
+- `ai-generated` and `plan` are automatically added by workflows
+- These should not be manually added or removed
+- They help track AI-assisted issue creation and planning
+
+#### When to Remove Labels
+
+**For Workflow Labels:**
+- `plan` labels may be removed after all sub-tasks are completed
+- Keep `ai-generated` for historical tracking
+- Don't remove automation labels unless the issue was incorrectly tagged
+
+**For Other Labels:**
+- Update priority labels as urgency changes
+- Remove incorrect type or component labels during triage
+
+#### Label Lifecycle
+
+**AI-Generated Planning Issues:**
+1. Created with `plan` + `ai-generated` labels
+2. Add type and component labels for better categorization
+3. Monitor sub-task completion
+4. Consider removing `plan` label when all sub-tasks are complete
+5. Close issue when work is done, keeping labels for historical reference
+
+**Manual Issues:**
+1. Created with type label (bug, enhancement, etc.)
+2. Add component and priority labels during triage
+3. Update labels as issue evolves
+4. Close when resolved
+
+### Label Hygiene
+
+**Regular Maintenance:**
+- Review unlabeled issues weekly and add appropriate labels
+- Update priority labels as project needs change
+- Ensure all open issues have at least a type label
+
+**Avoiding Label Overload:**
+- Use 2-4 labels per issue for effective filtering
+- Don't duplicate information (e.g., title already says "bug")
+- Prefer specific component labels over generic ones
+
+### Label Taxonomy
+
+**Current Label Structure:**
+```
+Type: bug, enhancement, documentation, question, testing
+Priority: priority-high, priority-medium, priority-low
+Component: cli, workflow, mcp, actions, engine, automation
+Workflow: ai-generated, plan, ai-inspected, smoke-copilot
+Status: good first issue, dependencies
+```
+
+This taxonomy provides clear filtering while avoiding label sprawl. Use GitHub's issue search to combine labels effectively:
+- `is:issue is:open label:bug label:priority-high` - Critical bugs
+- `is:issue is:open label:enhancement label:good first issue` - Beginner-friendly enhancements
+- `is:issue is:open label:plan` - Active planning issues
+
 ## 🔄 Pull Request Process
 
 1. **Before submitting:**