what is the difference between UDID & advertising identifier? When advertising identifier is used does the App functionality will change? Will the App functions properly when the iPad/iPhone is resetted.
UDID, which stands for Unique Device Identifier, is an alphanumeric string associated to Apple's iOS running Devices. Due to it's potential for abuse and privacy issues, Apple replaced it with the Advertising Identifier which is a: 


  non-permanent, non-personal, device identifier, that advertising networks will use to give you more control over advertisers’ ability to use tracking methods. If you choose to limit ad tracking, advertising networks using the Advertising Identifier may no longer gather information to serve you targeted ads.


This AdID is used for advertising purposes and does not changes the functionality of the App in any way. It can even be disabled. Reseting it, though, may mean that you'll be receiving less accurate ads. 

With iOS 6.1 a button was added to reset the Advertising Identifier, so that future requests will return a different value.