Functional as well as decorative. A great idea, especially when working with a small space is to select items that make great features yet also serve a purpose. For instance, chaise lounge chairs are great not only as lounges but they also double as a place to put your feet up and provide extra seating when you are entertaining guests.
Similarly, the right ottoman can be used as a foot rest, storage unit and coffee table. Decorating your living room space should be a fun experience.
The main way to make sure that your furniture works well together is to ensure that there is a common 'theme' running through each and every item that is in a particular space. The theme can be color, texture, style, period of construction or something entirely different.