Design For A 5 X 2 Label

I'm having a design done for a 5 x 2 paper label. Here is what the label company told me,

Just ask your designer to add 1/8" bleeds on the graphic file size. If you are ordering a 5" x 2" , the graphic file's size should 5.25" x 2.25".

I printer out the design on my own printer, and the size is indeed about 5.25 x 2.25

I guess I'm confused about bleed. To compensate for bleed on a 5 x 2 label, shouldn't the file size be smaller, like 4.75 x 1.75 ?

Wouldn't a 5.25 x 2.25 file size print well over the actual label?

Thanks.


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