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how does it identify location co-ordinates with labels? How does it know which place is home and which place is office?

I guess you can specify that easily, but how does it identify which place is a coffee shop? labeling each place you go to seems tedious.

The labels do have to be created manually, although it only requires two taps to do so, and it can be applied retroactively.
How does a location correlate to increased productivity? I have a hard time believing that if 33.3% of a day is in bed, and 33.3% of a day (or more) is at work, it seems really difficult to believe that this tool is going to maximize the other 33.3% of one's day.
For me it provides incentive just to get out of the damn house. :P

And it's really great knowing how long I've been at work without needing to keep track in my head.

Who is the target market?

I really think this could be useful for not the average user but traveling service professionals. By looking at this data they can figure out where they are most of the time and maybe even create alternate routes or stations based on the hot spots.

Frankly, the average home user is more concerned with the amount of time they spend on the tasks rather than location. I believe RescueTime does something similar to what I am describing for the end user.

Back when I was an IT consultant, I used to visit two clients a day and then have to tally the hours and enter into our billing software later each evening. I could not do this every evening so sometimes I would have to guess the hours spent several days later. It was a real pain. Something like this, targeted to IT consultants or IT consulting firms as an automatic billing tool would be very useful.