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The error message is clear: Functions can be defined inside M-files, when they are functions. You cannot create a function neither in M-scripts (M-files which does not start with "function ...", nor in the command window.
So open the editor to create a function. Then save the file to a user-defined folder, which is included in the path (see pathtool). (The later is not obligatory, but most likely what you want to.)