Functional Requirements define the basic system behaviour. Essentially, they are what the system does or must not do, and can be thought of in terms of how the system responds to inputs. Functional requirements usually define if/then behaviors and include calculations, data input, and business processes.
Functional requirements are features that allow the system to function as it was intended. Put another way, if the functional requirements are not met, the system will not work. Functional requirements are product features and focus on user requirements.
Also see Non-Functional Requirements.
Source: Functional Requirements