i use adobe illustrator, but everyone has their preference.
shipping labels will work just fine, although they might run when they get wet. try to get waterproof labels if you want to make something really nice.
try onlinelabels.com. they're the only place i found that has waterproof inkjet labels. i just received some samples in the mail. have not tested them out yet, but as soon as i do i will post a review.