Hip arthroscopy is a keyhole surgery of the joint where a few incisions are made. The surgeon inserts small cameras, called arthroscopes, and other mineature surgical tools into the hip joint. The camera displays the pictures onto a video screen and the surgeon uses this screen to repair injuries. These repairs may include cleaning or repairing a torn labrum, shaving down bony impingements, among others.
Labrum tears are so painful because the labrum contains nerve endings that can stimulate pain fibers, which can cause pain in the hip region. I can say, from personal experience, that the pain can range from a dull ache to the feeling like someone is stabbing you in the hip with an ice pick.
Click this link http://www.hss.edu/animation-hip-arthroscopy.htm to watch an animated video of how a hip arthroscopy works.
Here are links to a few websites that have great information (and pretty helpful drawings and videos) about hip arthroscopy (some are a touch gory):