Double-clicking a label will start yEd's inline label text editor and said editor cannot be moved.
If you want to select a label inside a node, you need to CTRL+click on the label. CTRL+click "cycles" the selection through all items under the mouse cursor (not only labels).
For completeness sake, I would also like to mention that SHIFT+click expands the selection. I.e. if you select one node and SHIFT+click another node, the second node will be selected in addition to the first node. This works for labels as well: if you select one label, you can select additional labels with SHIFT+click.
"Smart Free" supports snapping when the label is moved with the mouse. No other placement option offers that.