Line up the clear plastic over the wide end of the tag and stitch close to edge on three sides of plastic only.  Continue stitching close to edge around the top of the fabric tag.  Trim any plastic if neccessary.

TIP:  If your plastic sticks to the presser foot as you sew, switch to a teflon coated presser foot.  If you don't have a teflon foot, find some magic tape or invisible sticky tape (you know the type, the sort of tape that peels off very easily!) Stick a piece to the bottom of your presser foot, trim it to size, cutting a hole for the needle to go through.  Very effective, and cheap as chips! Go here, if you still don't understand...