Hi Mohan,
Best way, is you need to read through this links.
Functional location - Plant Maintenance (PM) - SAP Library
Clarification plant in the above will give good information about how you can create the functional location
Also check below, so you will understand the concepts of each term in SAP PM. Before finalizing the requirements, if you can read it, you will be able to develop good system.
Plant Maintenance (PM) - SAP Library
Regards
Terence