"When traveling, this distinguishes you as a WorldPerks Platinum Elite
or Gold Elite member."
(2006 Elite Guide)
I don't see much use for the tags. I guess if the GA's see them, that might be a good reminder to put the priority tags. They also make it easier to sport your bags on the belt. That's about it, I guess. I've seen some people put the luggage tags on their carry on, but I find that silly.
PS: I really wish there were a 2007 pdf Elite Guide, just like last year's!