Illustrator is a terrible painting tool. Sure it has a paint brush, but that doesn't mean you should use it. This is a tedious way to paint and can make for buggy files that crash and take forever to save. And, if you don't use a graphics tablet, really hard to get the results you'd get with real paint on real paper.
Our current project requires 1/8 inch bleed. This is required wherever ink touches the edge of the final label!
Create a new doc the size of your main label:
In the "Bleed" section, set it to .125 in.
3in x 4in artboard with .125in bleed (The red line)
Be certain that any artwork that goes the the edge of the label/artboard, goes past the edge to the red bleed line.
Now, to make an artboard for the bottle cap. Illustrator can't do non-rectangular artboards, so you have to adapt a square artboard with a circular guide
or guides to indicate the edge of the cut and artwork.
Choose the Artboard Tool near the bottom of the Tools panel
Draw out a new artboard roughly the right size (I'm targeting .75in)
While still in the Artboard tool, with the new artboard selected, enter the size in the Control Panel at the top of the screen
Draw a circle of solid color (remember, the cap is two colors, a background color drawn here, and a color fo the logo)
centered and out to the bleed line
Draw another circle centered and out to edge of the artboard
With the circle still selected, choose Menu > View > Guides > Make Guides
This turns the circle into a guide that accurately shows the edge of the printed bottle cap. Create your artwork for
the cap taking the guide's edges into account.
Add your artwork. Remember that with the background is one solid color and the artwork is another, solid, color.
Die Cut Bleeds
Die cuts are special dies (a kind of special shaped knife) used to create non-rectangular print jobs. Here's a company that specializes in die cut stickers,
Sticker Robot.
Say you want a label that looks like this
But this art doesn't include a bleed for the die to cut into
Take the bits that go past the edge of the cut and make a copy of them and paste in place.
Then add a .25in stroke to the objects (enter the "in" as part of the measurement). This centers a 1/4 inch stroke so 1/8 inch goes
past the edge of the cut line. Then move the stroked objects to the back of the layers.
Scalable Vector Graphics (SVG) is a method of using vector graphics on the web as a file format. Cool stuff, but it's really about the saving something in an .svg file. The filters work in that format for use on the web.