Functional dependency (FD) is a key concept in relational database design where one attribute uniquely determines another, signifying relationships between data attributes. It includes rules such as reflexive, augmentation, and transitivity, along with types like transitive, trivial, and non-trivial dependencies. The document also discusses normalization forms, particularly Boyce-Codd Normal Form (BCNF), and outlines the advantages of using functional dependencies to enhance data integrity and reduce redundancy.