This article from Dustin Wax appeared on Smashing Magazine yesterday and is nothing short of excellent.  Succinct, elemental and basic - as the author states…

These are the elements of functional design, the process of responding to the needs or desires of the people who will use an item in a way that allows their needs or desires to be met. Functional design is both an outcome and a process. As an outcome, it describes products that work well to perform their assigned tasks; as a process, functional design is a set of practices guided by the principles that produce that positive outcome.

I’m not going to bother repeating the article here - please take the time to jump over to SM and read it.  However, here’s a quick synopsis:

1. Consider the product’s goal
Determine that one primary goal of the site and make sure that everything you do revolves around that fundamental concept.  Every addition you make, every tool you provide, every piece of text you write should be dedicated to that goal.

2. Consider who will be using it
As JJG proposes, identifying the target audience can be a critical factor simply because most designers either fail to take it into consideration or misjudge it.  Audiences vary and so do their wants, needs, and abilities.  Cater to that need: a product has to work equally for all its potential users if it’s to accomplish its goal.

3. Consider what your audience intends to do with it
What your audience does may not be what you do.  YOU are not the audience, your users are.  Every user comes with intention, learn what those intentions might be.

4. Is it clear how to use it?
We designer/developers have a tendency to go beserk with our functionality.  Don’t.  "Clarity is the key to functional design".

5. How does your user know it’s working?
Provide feedback…it’s the only way your user knows that he or she is using it right.  Provide visual cues, highlight the necessary parts.

6. Is it engaging to your users?
One of JJGs two tenets and the one that I believe is fundamental to all things Web - is it engaging.  I harp on it nearly every quarter but I don’t think many people really see it.  Example: four times this week alone I’ve seen references to Blackberry’s as engaging - owners cannot seem to put them down or stop fiddling with them.  Whether its the feel, the interface, the haptics or the information it provides, there is definitively something engaging about them.

7. How does it handle mistakes?
JJG makes a big point of discussing error handling.  We as dev-igners pretty much think we never make mistakes.  Just because you can run through your web site and never encounter an error doesn’t mean your user won’t.  Users make mistakes.  Or more succinctly, your user will not do the same things you do.  How does the site correct, adjust or respond to errors?