I have found that the luggage tags do the following:
1. Stop the person guarding the 'Business Class' check-in queue making you get out your ticket / reservation / status card before letting you in. (FRA with LH)
2. Identifies you luggage should it go missing.
3. Allows you to identify other FF and start a boring conversation about their favourite airport / plane / airline / seat / lounge.
4. Marks you out as a 'pro' rather than a leisure traveller (holiday makers are most annoying)
5. Show off.