change Caps Lock key to fn key

Just changing caps lock to key code 63 with PCKeyboardHack works for me. Have you tried setting caps lock no action from System Preferences?

You could also try to use PCKeyboardHack to for example change caps lock to F19 and then use a private.xml like this with KeyRemap4MacBook:

<?xml version="1.0"?>
<root>
  <item>
    <name>test</name>
    <identifier>test</identifier>
    <autogen>__KeyToKey__ KeyCode::F19, KeyCode::FN</autogen>
  </item>
</root>

Brett Terpstra covered this in a December 2012 article about remapping the caps lock key.

http://brettterpstra.com/2012/12/08/a-useful-caps-lock-key/