This chapter explains in detail the notions of ‘functionings’ and ‘capabilities’. It discusses the multi-layered phenomena of capabilities in the form of as threshold, internal, external, and complex capabilities. It analyses how they provide valuable understanding about the conversion factors that are involved in the translation of resources to capabilities and capabilities into functionings. It critically evaluates the capabilities approach and emphasises the importance of the role of endowments and entitlements as factors influencing and contributing to human flourishing and well-being. The unique feature of the chapter is the presentation of an integrated analytical framework that traces the pathways to human development through equity, sustainability, empowerment, and productivity processes. In addition, the chapter discusses the Human Development Index (HDI) and the challenges relating to its computation.