In System Testing, System Test Case will be developed to 
validate the System as a whole End-to-end, while combining 
it with the required HW, Database, Networking and any other 
connections such as Printers, Fax or any other external 
supporting SW application. Here, while an input is given to 
the System, the System's behavior to handle the input data 
and its final expected out put will be verified. 

In Functional testing, Functional Test Cases woll be 
developed to validate the Application according to the 
functionality demanded by the client or provided in the 
SRS. Here the input is given to the application, the 
application behaavior to handle the input data and its 
final expected output will be verified.

System Test Case:
      It will cover the application from end to end. It is 
not based on the requirements given by the client. We need 
to cover the whole application.

Functionality Test Case:
      It will cover only functionality given in 
requirements document. We need to check whether the given 
functionality is working fine or not.

Ex: Take some maintenance projects. In that, for each and 
every release the client will give some enhancemants (new 
functionalities). In Functionality test case we need to 
cover only the given functionaliteis. But before delivering 
the project we should do System testing to assure that the 
whole system is woking fine.

Functionality test is a part of System Test.
In functionality test basic functionality of all the 
functional area of the application is tested and it ensures 
that the build is ready to go into System test.
In system test end-to-end functionality of all the 
fuctional area is tested throughly.