AFAIK, the "compatibility level" is a syntax-only setting. That is, it only affects the T-SQL syntax recognized and implemented.
There are a very few other areas and tools on SQL Server that are affected by this. For instance, I believe that some of the SSMS built-in management reports will not work on level 80 (though this may have been fixed in SP1).
But primarily it's the 2005 T-SQL syntax and features that you are giving up These are the big ones:
* CTE's, including recursive CTE's
* Windowed Aggregates (Row_Number(), Rank(), etc.)
* XML Data type, XML methods, FOR XML improvements
* TRY-CATCH error-handling
* varchar(MAX), nvarchar(MAX) and varbinary(MAX)
* DDL Triggers
* Event & query Notifications
* Service Broker
Additionally, I believe that you cannot take advantage of SQLCLR either (not sure about this one though).
(EDIT: Note, the above is not correct. Most of these features are still available under compatibility level 80).