Trinity: The Matrix isnt real!
Cypher: I disagree Trinity: I think the Matrix could be more real than this world... (source)
Lets first define what "functional" means: Any system can be described in terms of inputs, outputs, and internal states only! Thats the full definition... But what does that mean? This means that we strip intermediate states and processes and focus only on what some call a "black-box" that defines the system as the output relating to input! Within this view we can define a human in terms of senses (inputs) and feelings, emotions, actions, moods, and other mental states (outputs)...
Our nervous system transmits neurological signal to the brain which induces our consciousness, and after analyzing incoming signal produces an intelligent reaction that may consitutes emotional states... These neurologcal signals are actually electrical signals, but once our initial senses have been converted into electrical signals the real source of this signal cannot be verified nor reproduced... If we imagine our brains as a system where both inputs and outputs are electrical signals then we can understand that if identical inputs are provided within equivalent internal states then it is only logical to guess that identical output will follow!!
The Matrix does exactly what the above system aims at... The Matrix consitutes of internal states that are translated into electrical pulses identical to those if the internally described state was actual, then it feeds this input to the brain, which in turns modifies its own internal state as well as providing output that is used to update the internal state of the Matrix!!
Based on this view we can see that as long as the brain is concerned the input regardless of its actual source is what it constitutes as "reality"... Additionally humans are concerned with emotions, and whether you are actually fucking a gorgeous guy\girl or just stimulated to believe so doesnt matter as long as you are feeling ecstatic!!