A label template is merely a document containing a table. You can use such a
document as the basis for a label merge - see
http://www.gmayor.com/mail_merge_labels_with_word_xp.htm or
http://www.gmayor.com/merge_labels_with_word_2007.htm

You have not said what doesn't work, but I suspect that you have been thrown
by the entries

Name
Address
City, State Zip

that appear in all the cells of some of the downloadable label templates.
These are not fields but text. If you select the entries in Outlook
http://www.gmayor.com/mailmerge_from_outlook.htm and from the merge dialog
create a permanent contact data file. You can use that as the data source
for a conventional label merge. Replace the text entries

Name
Address
City, State Zip

in the top left cell (A1) with your merge fields from your data source and
then when you propagate the labels the text in the other labels will be
replaced by what you enter in cell A1.