Functionally Related Observable Differences
I am familiar with this in the context of nuclear arms control. FROD is the means by which the SALT II agreement specifies distinguishing those aircraft that are capable of performing certain SALT-limited functions from those that are not.
FRODs are differences in the observable features of airplanes which specifically determine whether these airplanes can perform the mission of a heavy bomber, or whether or not they can perform the mission of a bomber equipped for cruise missiles of a range exceeding 600 km, or whether or not they can perform the mission of a bomber equipped for Air-to-Surface Ballistic Missiles (ASBMs).
I can see how the term could have a broader usage, however. It could, for example, be applied to GUI differences between software versions.