In wavefunction methods the accuracy of the description of a system of electrons can be improved systematically starting from a reference, usually a Hartree-Fock wavefunction. This difference between the HF energy and the true non-relativistic energy is called (Coulomb) correlation energy and, as far as I know, it can be divided in, at least, two types: static correlation and dynamic correlation.
Dynamic correlation can be described by perturbative methods or Coupled Cluster theory, while static correlation needs multi-reference descriptions. Although the definition of dynamic and static correlation can be ambiguous, in some cases the effects of static correlation can be "separated" from dynamic effects and it becomes important to know what correlated method is needed.
In DFT, however, it seems that the amount of dynamic correlation, introduced by the exchange-correlation (XC) potential, is unspecified. Moreover, Kohn-Sham orbitals are constructed such that they reproduce the real electron density, which means that KS orbitals account some correlation effects. Also, the KS exchange energy is based only on a single determinant, thus, one can think that static effects are neglected. However, I'm not really sure about that sentence.
So, the question is, what correlation effects are included in DFT?