When advertising a VPN-IPv4 route, the PE also includes an MPLS label (representing the route) in the BGP message and sets the BGP NEXT HOP to itself.
The provider network is MPLS enabled, and any PE should be able to reach any other PE via an LSP (which is created by LDP or RSVP).
A PE will encapsulate an IP packet in two MPLS labels:
The egress PE pops the outer label, looks at the inner label (which uniquely identifies the destination), and it is the popped before forwarding to the CE router.
L2 Header – Label 1 – Label 2 – IP Packet
Label 1 is for the LSP
Label 2 is for the destination network