I'm not going to defend this idea too heavily; I'm clearly botching an idea from someone I read. I'm speaking rather freely here, so help me figure this out:
A car or computer is, to speak naively, programmed, and they work only by virtue of us. In a tricky sense, they thus are extensions of our selves and not independent organisms; they work or function only at our preference -- they function as we function them to function; in reality we are functioning through them. If that doesn't work (and I'm not sure it does), the words "alive" and "dead" are presumably biological in origin, and can be used as metaphors for spiritual life, and even cars or computers (a car can metaphorically be alive). Maybe this is a solution.
Anyways, how to determine what something's function is. That's a devilishly simple-looking question, and I know it wasn't meant to be that way. Observation. That's how you find out. You interpret a function from an observation of the organism. "It is functioning," that is, it's alive; "it isn't functioning," that is, it's dead. But say a person is shot in the head. His dead corpse twitches; there is still function, but is he alive? Everyone would say no. Because being alive means implementing consciousness with biological factors. Interestingly, even though the person is dead, the firing neurons are still very much alive. They're doing what they do. They're functioning.
Life as a psychological or spiritual metaphor gets a little trickier. Here function isn't either/or, but narrower. Human beings are psychologically alive in accordance with your own psychological interpretation of what it means to function normally. Logotherapists would say that a person is alive in proportion to his striving for meaning; Freud would say a person is alive in proportion to his libidinal discharges. And so on.