As a young painter, Picasso was struggling with one of the most difficult aspects of painting: how to compose a portrait of a company of people in a way that looks natural and such that the proportions of the figures match their position in space. If one figure is more remote from the viewer than another, than due to the laws of perspective, the more remote figure must be smaller in the plane of the canvas. With simple forms, such as cubes and pyramids, this is easy to draw, but with a complicated shape like the human body it can be very difficult. Add to this the expression a human figure must have in order to resemble a human being, then one can imagine why even a technical virtuoso like Picasso was struggling at first, see for instance Poor people on the seashore. In most of his blue period paintings Picasso avoided the problem of perspective by putting his figures on one line, parallel to the horizontal of the canvas.
Composition is not just a matter of proportion and perspective, it's also a matter of logic, but then in the sense that logic must be interpreted in the context of human psychology. If an action or a posture looks natural, then it's pictorially logical. In the Life painting the bodyweight of the woman on the left doesn't seem to be fully supported by either her left or right leg or both, but nevertheless her posture looks perfectly natural. The reason why the man puts the left leg forward with his left index finger pointing upward doesn't become clear from this painting, but again it looks really natural. While the woman on the right stands inert and static, the couple on the left gives the painting its dynamism. The way the left leg and arm and the head are positioned suggests forward motion that crosses the the observer's direction of view from left to right, like a three-dimensional diagonal. The woman on the right looks past the couple from right to left, in the plane of the canvas, suggesting action in that direction, and this is interrupted by the eye-catching upper painting behind the three people, which suggests motion perpendicular to the canvas. It are these three lines of action at different angles that keep the composition from becoming inert, and as such Life is one of Picasso's best early paintings.
Some people may argue that Picasso's Science and Charity painting shows that he was already an accomplished painter of group portraits at the age of eighteen, but I wouldn't be surprised if he had some help from his father, who was also a painter and art teacher. His blue period clearly shows a development that only came to completion in his rose period. See for instance Artists (Sad Mother with Child), from Picasso's rose period. In this painting Picasso applies the compositional techniques which he learned during his blue period in a relaxed and confident manner, while Life still looks somewhat tentative, which may also contribute to Life's power and dynamism. In painting it's often the struggle and search process that are the prerequisites for a masterpiece.
The drawings above are studies Picasso made in preparation of the Life painting and they reveal that Picasso initially intended to portray himself, but eventually changed the male figure into the image of Carlos Casagemas.
The mother with baby theme can be seen often in Picasso's blue period paintings, which seems to be inspired by his visit to St. Lazare, a woman's prison in Paris, in which prisoners were allowed to stay with their children and some would become Picasso's models.
The meaning of the Life painting is a object of pure speculation. Some interpret it as an allegory of birth, death, and redemption, others regard the gestures of the figures as borrowed from tarot cards. Picasso was an avid symbolist, in that he used symbols of both religious and occult origin, such that often he was the only one who knew what the symbols stood for. It's this author's best guess though, that he felt sorry for his friend Carlos Casagemas (who had committed suicide) and wanted to surround him with the love and female attention that he couldn't get during his life, which led to his suicide.
This was certainly not Picasso's original intention. The left-most drawing shows a man on the right, holding what looks like a palette. The right-most drawing shows Picasso himself as a model, so Picasso's initial goal, so it seems, was to create an allegory of artistry, with himself, rather vainly perhaps, in the nude.
Life is also a clash of styles. The couple on the left doesn't have a smooth finish, in the way it is painted, but nevertheless makes a very classical, renaissance-like impression. The woman on the right, though, with her heavy jaw and over sized feet has a coarseness that contrasts with the elegance of the couple. It also depicts the contrast between the real "outsiders" that Picasso painted during his blue period: the beggars, disabled and under privileged, and the would be outsiders that Picasso and his artistic friends were. The woman on the right was probably taken after a prisoner of St. Lazare, with the coarseness of her posture and limbs, while the delicate features of the couple are those of middle-class young people with romantic ideas about the margin of society.