After you remove domain controllers that are running older versions of Windows Server or you upgrade them to Windows Server ...

After you remove domain controllers that are running older versions of Windows Server or you upgrade them to Windows Server 2008 R2, you can raise the domain or forest functional level. Raising functional levels enables advanced features in the domain or forest, such as improved replication of group membership changes and the ability to create forest trusts. Raising the functional level limits which versions of Windows Server can host the domain controller role. Client and application compatibility are not affected by changes to functional levels.