Hi Business Process Expert,
Your Question 1# What is definition of equipment tag number?
Ans - It is nothing but unique identification number for piece of equipment (Machine) given by manufacturer or regulatory agency.
Your question 2# What is best place to maintain tag number in equipment master.
Ans - It depends on client where they prefer, In my last implementation I have seen client using technical identification field, Sort field or inventory number field. There is no thumb rule to place it in specific field.
Your Question 3# If tag number is different than Functional Location so logically what is difference between them.
Ans - I hope you understood difference between equipment and functional location. Tag number has nothing to do with Functional location unless you are treating one big machine as Functional Location (e.g Substation in Electric Utility company). If that's the case then you may use other fields apart from Technical Identification Field.
SAP definition of Functional Location is - Location where your equipment are install. And Equipment is piece of equipment.
I hope this will help