> Uh, really?
Oops. I was thinking of something else . . .

By the way, do "dead" cells come to life too?
Yes. http://en.wikipedia.org/wiki/Conway's_Game_of_Life

The problem with the code is that it is probably too long, it doesn't use descriptive names, it does use magic numbers all over the place etc. Therefore it is somewhat hard to help with that.
Yes, definitely. I'm sure the OP can think of better names than function1, function2 etc.

Also your functions should have prototypes before they are implemented
Function prototypes are not strictly required here, since every function call comes after the function has been defined.