From Halopedia, the Halo wiki
A Service Tag is a tag meant to identify soldiers quickly during battle. They are used in Halo 3, Halo 3: ODST, Halo: Reach, Halo 4, Halo: The Master Chief Collection, and Halo 5: Guardians multiplayer, co-op campaign, Firefight, and Spartan Ops.
Service Tags consist of one letter followed by two numbers in Halo 3. In Halo 3: ODST Halo 4, Halo: Reach, and Halo 5: Guardians, they can be any combination of 4 letters or numbers. Halo: Reach Multiplayer Beta also allowed other symbols, such as punctuation, but these are not allowed in the final game. In The Master Chief Collection, they can be any 3 letters or numbers.
Service Tags show up above the player's head in the HUD, with a marker indicating their position; in team games, players can see their teammates' locations and Service Tags even through walls. When the player's crosshair is directly pointed at that player, the full user name is displayed instead. When players die, the service tag is replaced with a red cross. This also helps the slain player's teammates to locate enemies.
It is good to set one's service tag identical to their profile name, so allies can know which of their team-mates are with them. Also, if one cannot directly center a soldier, one is still able to catch their service tag.
Prohibited Service Tags
Profane or offensive service tags are not allowed on Xbox Live. Additional tags relating to characters and copyrighted material are also banned in Halo 3. Several codes related to characters are described as "reserved for use by the UNSC." All others are "not allowed under current UNSC regulations." Subsequent games have featured no such restrictions, and only prohibit profanity. The "UNSC" tag is not allowed either in Halo 5: Guardians.
Halo 3 prohibited tags