Functional area is typically used for the cost of sales accounting ledger (0F, if memory serves). It's used to report results under the cost-of-sales accounting approach. This is required under US GAAP.
You'd define functional areas such as manufacturing, sales, distribution, administration, maybe R&D, etc. Each transaction is recorded with a functional area, and that additional dimension is used in reporting to classify expenses.
I'm not sure how it is usually applied in non-US GAAP scenarios. The SAP library (under Accounting --> Financial Accounting) provides more detail.