O quarto funciona como estúdio de gravação.

O is the definite article, meaning the. In Portuguese, it is very common to use articles where English might or might not use them.

• o quarto = the room / the bedroom
• quarto by itself can sometimes appear, but in a normal full sentence like this, o quarto sounds much more natural.

Also, quarto is a masculine singular noun, so it takes o.

It can mean both, depending on context.

Most commonly:

• quarto = bedroom

But in some contexts, especially when the meaning is already clear, it can also be understood as:

• room

In this sentence, O quarto funciona como estúdio de gravação, it probably refers to a bedroom that is being used as a recording studio.

Yes, funciona literally means functions or works, from the verb funcionar.

In this sentence, it means something like:

• serves as
• works as
• acts as

So O quarto funciona como estúdio de gravação means the room is being used in that role.

Examples:

• Isso funciona bem. = That works well.
• A sala funciona como escritório. = The living room serves as an office.

Using funciona como emphasizes use or role, not identity.

Compare:

• O quarto funciona como estúdio de gravação.
  = The room serves as / works as a recording studio.

• O quarto é um estúdio de gravação.
  = The room is a recording studio.

The first suggests the room is not necessarily designed or officially defined as a studio, but it is being used that way. That is a very natural distinction in Portuguese.

Here, como means as.

So:

• funciona como = works as / serves as

Be careful: como can also mean how in other contexts.

Examples:

• Como você está? = How are you?
• Ele trabalha como professor. = He works as a teacher.

In your sentence, it is definitely the as meaning.

Both are possible, but they are slightly different in feel.

• funciona como estúdio de gravação = more general, idiomatic, focusing on role
• funciona como um estúdio de gravação = also correct, but a little more explicit: functions like a recording studio / serves as a recording studio

After como, Portuguese often omits the article when talking about a role, category, or function.

Compare:

• Ele trabalha como médico. = He works as a doctor.
• A sala funciona como escritório. = The room serves as an office.

So the version without um is very natural.

It breaks down like this:

• estúdio = studio
• de = of / for
• gravação = recording

So literally:

• estúdio de gravação = studio of recording

But in natural English, that is:

• recording studio

This is a very common Portuguese structure:

• noun + de + noun

Examples:

• máquina de lavar = washing machine
• sala de aula = classroom
• óculos de sol = sunglasses

Because estúdio de gravação is the standard fixed expression for recording studio.

In Portuguese, de is very often used to link a noun to its purpose or type:

• sala de jantar = dining room
• escova de dentes = toothbrush
• estúdio de gravação = recording studio

You might sometimes see para in other contexts when stressing purpose, but here de gravação is the normal and correct collocation.

• estúdio is masculine: o estúdio
• gravação is feminine: a gravação

In the sentence, that does not change anything because estúdio appears without an article, and gravação comes after de.

Examples:

• O estúdio é pequeno. = The studio is small.
• A gravação foi longa. = The recording was long.

A rough pronunciation guide:

• funciona ≈ foon-syo-na
• gravação ≈ gra-va-SOWN

A few notes:

• In funciona, the ci sounds like sy in Brazilian Portuguese.
• In gravação, the final -ção sounds roughly like sown with a nasal ending.
• The stress is:
  • fun-ci-O-na
  • gra-va-ÇÃO

If you are learning Brazilian pronunciation, the nasal ending in -ção is especially important.

Yes, that is possible and natural.

Compare:

• O quarto funciona como estúdio de gravação.
• O quarto serve como estúdio de gravação.

Both mean that the room is used as a recording studio.

A small nuance:

• funciona como suggests it works well in that role
• serve como suggests it serves that purpose

Both are good, and in many situations they are interchangeable.

Yes, it sounds natural.

It is a normal way to say that a room is being used as a recording studio. A Brazilian speaker would easily understand it.

Some other natural variations are:

• O quarto serve como estúdio de gravação.
• O quarto é usado como estúdio de gravação.
• O quarto virou um estúdio de gravação. = The room turned into / became a recording studio.

But your original sentence is completely correct and natural.