I pretty much agree that a functional alcoholic holds down a job, pays bills and to the average acquaintence or co-worker, seems normal. These people may not even know if the person in question drinks or not.
But the closer you get to the alcoholic - closer co-workers, closer friends, family members - the more aware of the alcoholism they are.
Of course "functional" is just one train stop on the way to hell. I went from a functional alcoholic, to a mostly functional alcoholic, to a part time functional alcoholic, to a rarely functional alcoholic, to a dysfunctional alcoholic. As I went down that path, there were more and more people, on each successive step, that were aware of my alcoholism. This is of course despite my best attempts to hide it.
I don't think using the term has a lot of value except maybe to the medical/recovery community, to see how far down the line the person has gone. In AA when a newcomer tells me he is a functional alcoholic, I always try to gauge just how functional they were, and relate my progression as I did above.