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This is called a placeholder, and I don't think it's best practice, it's a matter of taste.
Labels are a best practice for accessibility. Placeholders should be used as example input, if at all.
Absolutely. I was curious to see this practice encouraged by a document about UX design and the linked page actually lists all sorts of drawbacks for it and encourages using labels at the top or at the left of the input (right aligned to make the label close to the input).

Do not use placeholders for labels please.