Domain Functional Level refers to a set of attribute values that help applications to determine the functional level of the domain. That is, to determine whether it is at the schema level AD 2003 or AD 2012.
To Validate the Domain functional Level: In the MMC, click Active Directory Domains and Trusts, right-click Domain, then select Raise Domain Functional Level.
A message appears stating the Domain functional level. AD 2012 for the updated server and AD 2003 for the reference server used for validation.
To Validate the Forest Functional Level: In the MMC, right-click Active Directory Domains and Trusts, right-click Domain, then select Raise Forest Functional Level.
A message appears stating the Forest functional level. AD 2012 for the updated server and AD 2003 for the reference server used for validation.