How are spongy and compact bone tissues different in (1) microscopic appearance, (2) location, and (3) function?
Bone cells are called osteocytes. There are similarities and differences between spongy and compact bone types. The obvious difference is in their density--spongy is less dense than compact, just as the name implies. The combination of the two give both strength and flexibility. As you can see from the second link I posted, the compact bone tends to be to the outside, and spongy bone to the inside of bones. The following quotes are from the first link, and explain things pretty well:
Spongy bone consists of plates (trabeculae) and bars of bone adjacent to small, irregular cavities that contain red bone marrow. The canaliculi connect to the adjacent cavities, instead of a central haversian canal, to receive their blood supply.
In compact bone, the haversian systems are packed tightly together to form what appears to be a solid mass. The osteonic canals contain blood vessels that are parallel to the long axis of the bone. These blood vessels interconnect, by way of perforating canals, with vessels on the surface of the bone.