Murphy Models manufacture sound chips for their range, and ModelShopBelfast.com also offer an alternative range. Both are excellent, but I personally prefer the sounds from the MSB units.
Functions are solid state control circuits that can be used for lights, uncoupling, etc. Most provide a simple 12v DC supply, and others can provide 'special effects' like fashing strobes, etc. Each decoder will have different options and features.
2 Function is your basic decoder, it will run the loco, and give you two (typically) light circuits, that you can use for directional lights, headlights, etc, as you wish.
More functions, simply give you more circuits, so you can have more light controls, headlights independent of the directional lights, cab lights, etc.