If you acquire any potions, scrolls, poisons, or alchemical substances during your adventures, they will have a tag attached. If you create your own through the Production Points system, then you must supply a physical representation (“phys rep”) for the item, and the tag must be attached. This physical representation can be stolen, at which point the thief will take both the tag and the item.
A tag by itself is not a valid item. If someone hands you an out-of-game potion tag and says “Here, drink this!” you should reply “Drink what?” since nothing is being shown to your character in-game. This rule exists because in-game these things take up room and add weight. You can’t carry around a hundred potions as easily as you could a hundred tags.
Keep in mind that the tags themselves are stealable even if they are technically out-of-game. This is because it is not fair to punish the thief for the disobeyance of the phys rep rule by the thief’s victim. Thus, if you have a bunch of tags that you have not attached to phys-reps and someone searches you, you must turn them over. Further, these tags can be destroyed by traps even though they are not attached to a phys rep.
The bottom line is that there are absolutely no advantages (but lots of disadvantages) for not having phys reps for each of your tags. It can never work in your interest to not have phys reps for all of your items. You must provide your own phys rep for magical weapons and items you create in-game, although there may be times that it will be provided in-game. Once it is in-game, you cannot alter the weapon in any way except to repair it when needed. If the phys-rep wears out, then another must be built that looks just like the original. Permanent magic items can never be modified and must always look the same.
If you have a very expensive or personal item that gets turned magical (say, a very nice suit of armor) and the item is stolen in-game, you have the right to refuse to turn over your personal item. You must still, however, turn over the tags for that item. In exchange for keeping your own item, you forfeit your right to “recognize” your special armor later when the thief wears it in-game (using your tags with his or her own physical representation).