You can do it that way but there is a file on CD2 and CD3 named 'preystub.exe', this file does not need to be included on the DVD. If you copy CD3 first and work your way to CD1 then the 'preystub.exe' wont be overwritten.
The 'preystub.exe' file is only there to show you the 'Please Insert Disc 1' message. If you were to install from the CD's and you were to put CD2 or CD3 in the drive before CD1 then you will see the message.
So here is another way of doing it, it was posted on cd-2-dvd.com on the 12 of July, sorry dont know what time I posted it?
And yes any Label will do for your DVD.
1) Create a Temp folder on your harddrive.
Name this folder: Prey_Disc1. This will be the name (Label) of our DVD.
2) Copy all the contents from CD1 to the Temp folder.
3) From CD2 copy the ‘Setup’ folder and the ‘data3.cab’ file to the same Temp folder.
Overwrite any files when prompted.
4) From CD3 copy the ‘Setup’ folder and the ‘data4.cab’ file to the same Temp folder.
Again overwrite any files when prompted.
5) Create another folder/s for any Updates, Serial, Patches and or Cracks etc.
NOTE: Name this/these folder/s whatever you want.
6) Burn the contents of the Temp folder to a DVD with the Label: Prey_Disc1