You can use most woods for these as long as the wood is seasoned, otherwise the tags may split as they dry.
Step 1: You will need...
avoid branches with a central pith or soft center as it could prove difficult to write on.
A saw - the finer the teeth the better = less sanding.
A 4-5mm drill bit (dependent on the thickness of the twine/string).
Some suitable string/twine, I use Jute for a rustic, earthy look.
Appropriate safety requirements.
Step 2: First...
I use a bandsaw with a simple jig to keep a consistant angle, as I usually make around 20-30 at a time, but for just a few, any fine tooth saw will do - if using a handsaw, it is easier to clamp the wood in a vice or to a bench/table.