This paper presents the flow physics of condensing steam flow across a straight through labyrinth seal from numerical simulations performed using ANSYS CFX. Homogeneous nucleation model and droplet growth model, which are critical in predicting condensation, are validated with good agreement against a well-known experimental data set from convergent-divergent nozzle. Validation data includes static pressure drop, condensation location, condensate mass fraction and Sauter mean radius. CFD study is performed on a five teeth labyrinth geometry to predict leakage flow rate, location of condensate accumulation and condensation rate. Impact of subcooled and condensed steam on leakage flow, pressure and temperature field are also discussed. For condensing steam, the condensate accumulation trend is identified. Some of the key findings and physical insights of interest to the designer are listed including: the effect of cooling on the leakage flow (with and without condensation) and the minimum seal wall temperature to avoid condensation based on subcooling needed for droplet formation (at location condition). Also investigated is whether steam condensation continues or if existing condensate evaporates in the downstream pockets, and the effect of heat release from condensation on number of droplets formed and the Sauter mean radius.