In this case, it is definitely about a small label that knows they won't get back any money from you. But it doesn't mean that it is necessarily a bad thing: Some of these small labels ask for these kinda fees but they in return can offer a very good promotion for the band, getting your music reviewed and reaching more people you couldnt have reached on your own. You should definitely make some research and contact / look at the status of other bands that have been involved with the label (or that are still involved with it) and make sure there are no "personal ties" (ex: the bassist of X band signed to the Y label is actually the guy who runs the Y label)
From my experience I can say, that there is nothing you can't do on your own that a small d.i.y label can but:
- If you feel you are dealing with honest and passionate people who know what they do and don't "overwork", releasing dozens of records a month, its definitely a good start
- If you see that the records from the label have actually a sort of following, are covered by media (online or not), this is definitely the biggest advantage.
- Personally I think that selling record is not the main fuel for the "business", so the things I'd really worry about is to get as much exposure as possible in order to be in a position to be able to tour and actually have a bunch of people coming to see you in determinate areas