Functional fitness is pretty much exactly what it sounds like- your fitness to function, i.e., your ability to actually perform activities in real-life settings. Your latest bench press might be impressive, but if you can't put your suitcase in the overhead bin on the airplane without dropping it on you - or worse, someone else's head or straining your back, then you aren't really getting the full benefits of your workout.
How could the scenario above or one like it come to pass? Easily, as it turns out. When workouts focus on isolated muscle groups, those muscles get stronger but they don't learn how to work in coordination with other muscle groups. This kind of coordination is what we use in the real world, as it turns out. We use large muscle groups and multiple muscle groups at a time. Picking up a child, moving a piece of furniture, even twisting to pull a bag from the back seat into the front presents us with a multi-muscle group challenge. Let your workout reflect the demands of your daily life and you'll benefit more, have fewer aches and pains from day-to-day activity, and be better prepared for whatever comes your way.