Almost all the physical/physiological/metabolic/functional activities (like glycolysis, TCA, photosynthesis, replication, transcription, translation, respiration, etc.) of a (cellular) living organisms (excluding viruses) occur inside the cells irrespective of the unicellularity or multicellularity of the organism. For example, if a multicellular animal need to exhibit motion, the activity occurs at cellular level (contraction and relaxation of myocytes)- the orchestrated contraction and relaxation of all the participating myocytes (and associated neurons and other cells) is observed as an event of motion in the organism.
Therefore, the cells are functional unit of life because all the functions of a living organism occurs inside the cell.
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