they are no way better than Argentina, England, Netherlands, Italy, Germany and etc, no way, those rankings are a little bizzare in my opinion.
Answer on How is portugal 3rd in world rankings?
Here's the answer:
They played competitive matches (against Bosnia-Herzegovina) in November - while the other top 10 teams played friendlies - thus lowering their average. Also, their match against China was considered a non-A match, because teams made more than 6 substitutions, so it didn't affect the rankings. For a top 20 team, a friendly will bring their average down.
Also Portugal is undefeated for some time.
I'm not saying that they are actually the 3rd best team in the world. That's just the way the FIFA ranking formula works.