This article is from the alt.usage.english FAQ, by Mark Israel email@example.com with numerous contributions by others.
"Functionality" is often attacked as a needless long variant of
"function". But they are differentiated in meaning. "The function
of a screwdriver is to turn screws. Its functionality includes
prying open paint cans, stirring paint, scraping paint, and acting
as a chisel. The function is what it is designed to do. The
functionality is what you can do with it." -- Evan Kirshenbaum.
A thing's functionality includes its functions if and only if it
does what it was designed to do. This specialized meaning of
"functionality" is not yet in most dictionaries. The earliest
citation we have was found by Fred Shapiro in the June 1977 issue of
Fortune: "The way to grow, an I.B.M. maxim says, is to 'increase
the functionality of the system,' or, in plain English, to give the
customer the capacity to do more than he wants to do in the
knowledge that he inevitably will."
Mark Odegard suggests a similar distinction between "mode" and
"modality": "A 'mode' is a way of doing something. A 'modality'
is doing something according to a protocol."
Outside technical contexts, the word "functionality" may well
strike some readers as jargonistic. Thought may be needed to
find a substitute that works in the context. "Utility" is
sometimes suggested, but consider: "The utility of mainframe
computers has declined sharply over the past decade; their
functionality has remained the same." Here, "their capabilities
have remained the same" might be the best solution.