When I am in battle, before I attack, it keeps saying I am feeling funky. What does that mean? Does it have any effect on my character?
It appears that you have been "Mushroomized".
Mushroomization is a status condition caused by mushroom enemies such as the Ramblin' Evil Mushroom. In the overworld, the mushrooms cause the controls to scramble positions while walking around and it also makes a mushroom appear on the head of whoever is inflicted. While in-battle, it may cause a character to attack a party member or heal an enemy. If the prompt "[character name] is feeling funky!" appears after you select your move, the effects will take place.
In other words: "Feeling funky" is the EarthBound equivalent to "being confused" in many other RPGs.
This is a status condition called Mushroomized that comes from mushroom type enemies. It's very similar to "confusion" in most other games where it can cause the infected player to unwantedly attack allies.
You should be able to remove the effect by visiting the hospital. IIRC there is a man in the lobby that you can talk to who will remove the effect.
There is a second effect to confusion, your character will eventually run in directions that are not the direction you are pointing. Sometimes, the control is flipped-down is up, left is right. Other times, it is 1/4 turned-up is right, right is down, down is left, left is up. Better to get rid of it as soon as possible!