There are two types of standard aviation lights:
Navigation Lights ("Position Lights") are a safety feature on every plane bigger than an ultra-light. They indicate the orientation of the plane so other aircraft know which direction the aircraft is going. For that purpose, the international standard is a red light on the left wingtip, a green one on the right, and a white nav light on the tail.
Example of the correct use in KSP:
But, of course, this is KSP. You can just put them on where it looks cool. :D
Warning Lights (both "Strobe" and "Beacon") are flashing lights to enhance visibility in bad weather and to warn air traffic and ground personnel.
Beacons are typically mounted on the tip of the vertical tail on smaller planes, or in the middle of the fuselage (top and/or bottom) on larger aircraft. They're red, bright and flashing to indicate that parts of the airplane (engines) are moving or the airplane itself is about to move.
Strobes are very bright, white, fast blinking lights which are mounted on the wingtips (next to the red/green navlights) and sometimes on the tail (next to the white navlight) on larger planes. They're so bright that they remain off until the pilot lines up on the runway, so the ground personnel won't be blinded if they stand right next to it.
In addition to the standard navigation and warning light colors, there are amber and blue preset options.
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