Hi there, I'm a non-binary trans person, might be able to shed some insight here.
So, trans is a spectrum. You can be mtf, or ftm, or somewhere in between. Mtf and ftm are "binary" trans identities, because they fit into the typical gender binary. Trans women are women, trans men are men.
But there exists a whole spectrum in between there, which is where I live, which contains many different gender identities. These include genderfluid, demiboy, demigirl, agender, bigender, genderqueer, and many others. The shared characteristic is that they are not part of the binary male or female. You may also hear the umbrella term, enby (phonetically derived from NB, for Non-Binary).
These are still trans identities, because they are not cis. Cis means you identify with your assigned gender at birth (AGAB), trans means you don't.
What is right for any given person is really up to them to know what feels right. As for why we need labels in the first place, it's because it gives us a sense of belonging. It helps us feel seen. Like we're not going through this alone. Not everyone will identify with labels, and that's fine, but I've found that for the majority of trans people, having the labels helps them come to terms with who they really are.
When I was first figuring out that I wasn't cis, it was very confusing. There's a lot of information out there and it can be overwhelming. But seeing all the different labels helped me to learn how to talk about my experiences, and which genders I identified with more than others, and overall just made me feel like this was just something to figure out and think on, rather than it being something wrong with me. I knew I'd figure it out eventually, it was just a process of trial and error.
I can now proudly say I am bigenderfluid, which is a gender that I think I may have invented. But to me, it means that while my "ratio" of femme to masc presentation varies day to day, I always feel like a little bit of both. So, there's always two, thus bigender, but it's not firm, thus genderfluid.
Hope this helps! And I'm always happy to answer (good faith) questions, so feel free to ask any follow ups you may have.