Each function or layer describes a specific network activity. The OSI model is only a conceptual methodology that explains how computers communicate. It does not set rules. That is up to each manufacturer and the protocols they design. The OSI model is hierarchical in nature.
Encapsulation describes the way data moves from layer to layer.
Each protocol at each layer adds data to the original packet and the new data is specific to that layer. Peer Communication means that layers can't communicate directly with other layers. They can only communicate with their counterparts. Also, the protocols must be compatible with the protocols on the other end. If you send a Word document then you need Word or something that can read Word at the other end.