Throughout, On Lisp emphasizes programming in a functional style. Chapter 3, "Functional Programming" provides a clear presentation of functional programming. More importantly, it shows where and how mutation is used when doing so.
Well, for me Lisp is a mostly-functional language. In Scheme its quite simple - just avoid set-car! set-cdr! and other destructive primitives when possible, while in CL you should be more careful and disciplined due to lack of agreed upon naming conventions for destructive operations and possible implicit usage of setf in macros. Anyway, even CL could be called mostly-functional.
While Lisp can be used in a functional manner, the book does not really qualify as a book on functional programming.