What is difference between IP Routing and MPLS VPN Routing ?

In IP routing as an IP packet travels from one router to the next, every router makes it’s own decision on where the packet should go .Each Router reads the IP packet header, and then runs a routing algorithm against the destination address to determine the next hop. Every router then chooses its own next hop for the packet based on the packets header and the routing algorithm. Routers will assign each packet into a set of “Forwarding Equivalence Classes (FECs)” They will then map each FEC to a next hop.

With MPLS every packet only has its IP layer header examined once, when it enters the MPLS network. After the initial FEC assignment a 32 bit fixed length label(called MPLS Label Header or Shim Header) is inserted into the packet that contains the assigned FEC then is sent to the next hop router with the label attached. The label is of local significance only. When MPLS routers, which are called label switch routers(LSRs), are provisioned they will set up a table of label to FEC mappings. Each FEC is assigned a next hop. A label distribution protocol(LDP) is used to exchange label information between label switch routers that have a direct connection to each other. The protocol usually rides on top of the routing protocol in use by the use of extensions that have been developed for MPLS. As the packet goes from hop to hop across the MPLS network the network layer header no longer has to be examined by every router. Instead, the label is used to determine the next hop and which new label to use.
The old label is replaced with the new label, and the packet is forwarded to its next hop. With MPLS forwarding, once a packet is assigned FEC subsequent routers do no further network layer header analysis; the labels drive all forwarding decisions

This method of packet forwarding has many advantages over IP layer forwarding. Since a packet is assigned to a FEC when it enters the network, the edge label switch router can use any information about the packet in determining which FEC to use, even if the information is not contained in the IP header. Packets with the same destination arriving on different ports of the router can be assigned to different FECs. Conventional forwarding, on the other hand, can only consider information that travels with the packet in the packet header. A packet that enters the network at a particular router can be labeled differently than the same packet entering the network at a different router, and as a result forwarding decisions that depend on the ingress router can be easily made. This cannot be done with traditional forwarding, since the identity of a packet's ingress router does not travel with the packet.