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Source: Equipment codes

An equipment code describes the communication (COM), navigation (NAV), approach aids and surveillance transponder equipment on board an aircraft. These alphabetic codes are used on FAA and ICAO flight plan forms to aid flight service station (FSS) personnel in their handling of aircraft.
On the FAA domestic flight plan form (FAA Form 7233-1) the equipment code is a single character placed in block 3 (Aircraft Type / Special Equipment) as a suffix to the aircraft type code. A single letter is used to represent a radio navigational capability and transponder combination.
On the ICAO flight plan form (e.g. FAA Form 7233-4 based on the format specified by ICAO Doc 4444) one or more alphabetic codes are placed in box 10. Multiple letters are used to describe individual radio navigational capabilities and a single letter is used to designate the transponder. The FAA began requiring the ICAO format form for domestic flights desiring RNAV routes on 29 July 2008. The ICAO format has already been in use for all domestic flight plans in Canada, Mexico and many other countries for a number of years.
Regardless of the form used, air traffic controllers (ATC) issue clearances based on filed equipment codes, therefore it is important for pilots to use the appropriate coding. For example, if a desired route requires GPS, then the pilot should file /G, even if the aircraft also qualifies for other suffixes (this may be moot due to new RNAV routing requirements to use the ICAO form & codes). Pilots are recommended to file the maximum capability of their aircraft in the equipment suffix.
To see the differences in the coding systems, consider a VFR aircraft with a VHF communication radio, VOR receiver with glideslope for ILS approaches, ADF, a GPS and a pressure altitude reporting transponder. It would be coded as SG/C on an ICAO form and as /G on the FAA domestic form. Add a DME to the panel and the ICAO code becomes SDG/C while the FAA code remains /G. Then, if the ADF stops receiving the ICAO code becomes DGLOV/C while the FAA code remains /G. More letters with the ICAO format mean more information about the aircraft's radio navigation capability is available to the ATS controller than with the older FAA coding system.