Density functional theory of electronic structure is widely and successfully applied in simulations throughout engineering and sciences. However, there are spectacular failures for many predicted properties. The errors include underestimation of the barriers of chemical reactions, the band gaps of materials, the energies of dissociating molecular ions and charge transfer excitation energies. Typical DFT calculations also fail to describe degenerate or near degenerate systems, as arise in the breaking of chemical bonds, and strongly correlated materials. These errors can all be characterized and understood through the perspective of fractional charges and fractional spins introduced recently. © 2012 American Institute of Physics.