A Usability lab is where users are studied interacting with a system for the sake of evaluating the system's usability.
Usability labs help optimise UI designs, work flows, understanding the voice of the customers, and understanding what customers really do. Through in-lab sessions at a specified location, designers, stakeholders and anyone else involved in the project, are observing the process of how a customer interacts with the system. To understand user needs, engineers must observe people while they are actually using computer systems and collect data from on system usability.