How are packets forwarded in an MPLS domain?

Forwarding based on the destination IP address is characteristic of traditional IP routing, not the label-based forwarding within an MPLS core.

The source IP address of a packet is generally not used for forwarding decisions in any standard network topology.

Within an MPLS domain, packets are encapsulated with one or more labels. Label Switching Routers (LSRs) forward these packets by performing a lookup based on the label, swapping the incoming label with an outgoing label, and then sending the packet to the next hop without inspecting the packet's IP header. This label-based forwarding is the core mechanism of MPLS.

MAC addresses are used for Layer 2 forwarding within a local segment, but within an MPLS domain, the forwarding decision at the MPLS layer is made using labels, although the MPLS frames are carried over Layer 2.