I hear all the time that Erlang is a functional language, yet it is easy to call databases or non side-effect free code from a function, and commands are easily ordered by using "," commas between them just like Ruby or another language, so where is the "functional" part of Erlang?
The functional part is that you tend to pass around functions. Most langauges can be used both as a functional language, and as an imperative language, even C (it's quite possible to make a program consisting of only function pointers and constants).
I guess the distinguishing factor is usually the lack of mutable variables in functional languages.
The central idea is that each process is a functional program over an input stream of messages. The result from the functional program is an output stream of messages to others. From this perspective, Erlang is a rather clean functional language; there are no destructive updates to data structures (like setcar in Lisp and most Schemes).
With few exceptions, all built-in functions such as operations on ETS tables also follow this model: apart from efficiency issues, those BIFs could actually have been implemented with pure Erlang processes and message passing.
So yes, the Erlang language is functional, but a collection of interacting Erlang processes is a different thing. Each process is an ongoing computation, and as such it has a current state, which can change in relation to the other processes. Even a database is just another process in this respect.
In my mind, this is one of the most important things about Erlang: outside the process, there could be a storm raging, but inside, things are calm, letting you focus on what that process should do - and only that.
Yes, it's a functional language. It's not a pure functional language like Haskell, but then again, neither is LISP (and nobody really argues that LISP isn't functional).
The message-passing/process handling of Erlang is an implementation of the Actor model. You could argue that Erlang is an Actor language, with a functional language used for the individual Actors.