Functional specifications are formal documents that describe a product's intended capabilities, appearance, and user interactions in detail for software developers. They enable expectations to be managed and streamline the development process by providing complete requirements for developers to build from without ambiguity. The functional specification analyzes user requirements, desired look and feel, customization options, and how new users will interact with the website and its business processes. Creating effective functional specifications involves fixing system boundaries, identifying stakeholders, eliciting requirements from them, analyzing gathered requirements, and managing requirements throughout the project.