An assessment functions formatively when evidence about student achievement elicited by the assessment is interpreted and used to make decisions about the next steps in instruction that are likely to be better, or better founded, than the decisions that would have been made in the absence of that evidence.
Read this document on Scribd: Formative Assessment
The big idea:
Use evidence about learning to adapt teaching and learning to meet student needs.
In other words: if it 'aint adaptive, it won't be formative.