A model can be assigned to multiple bones, and in fact most do. You'll need to look into weight-painting mode (google it) to efficiently rig your model. I would suggest looking at the default item you are looking to replace and see how the bone weights are set up. Then mimic the setup with your own model.

I have the vertex grouped and those areas in my object which are weight painted appeared green or light blue (supposed to deform). The object has parented the skeleton bones, and is selected as Armature (Not sure if its correct?) or should i select as Bone?? (no idea which bone to bind to..). But i have no idea how to properly put the object as it suppose to be, when viewed in game, the item is not at its correct location.

I'm sorry, I don't really understand what you're trying to say. I suggest looking at an existing item to see how the bones are applied.

In short, how do you actually place ur item correctly at the correct location and working correctly?

Since there are multiple bones to be applied to, how do I properly assign them to, so it will not appeared out of place or not working properly?

-Current phase-
I have a vertex group containing all the bones, in my object.
I parented my object to the skeleton, and selected it as Armature.
I have my object pivot location at 0 X,Y,Z. The object is then moved to exactly where the existing object location is, (IN EDIT MODE).
The problem is, when viewed in game, turns out my object is somewhere away from the Hero.

I am a bit confused as I do not know how to place my item correctly, since weapons are only need to bind to the weapon bone, but other items are not... so yeaa

I personaly dont like the weight paint mode. First off all you must open the default object from valve and check how they bound the bones. You can bind the bones in edit mode by selecting a part, then choose the bone you wnat that part to be bound to and assign it. Do it for all bones until ALL faces are bound to bones