Model-data fusion is a process in which field observations are used to constrain model parameters. How observations are used to constrain parameters has a direct impact on the carbon cycle dynamics simulated by ecosystem models. In this study, we present an evaluation of several options for the use of observations in modeling regional carbon dynamics and explore the implications of those options. We calibrated the Terrestrial Ecosystem Model on a hierarchy of three vegetation classification levels for the Alaskan boreal forest: species level, plant-functional-type level (PFT level), and biome level, and we examined the differences in simulated carbon dynamics. Species-specific field-based estimates were directly used to parameterize the model for species-level simulations, while weighted averages based on species percent cover were used to generate estimates for PFT- and biome-level model parameterization. We found that calibrated key ecosystem process parameters differed substantially among species and overlapped for species that are categorized into different PFTs. Our analysis of parameter sets suggests that the PFT-level parameterizations primarily reflected the dominant species and that functional information of some species were lost from the PFT-level parameterizations. The biome-level parameterization was primarily representative of the needleleaf PFT and lost information on broadleaf species or PFT function. Our results indicate that PFT-level simulations may be potentially representative of the performance of species-level simulations while biome-level simulations may result in biased estimates. Improved theoretical and empirical justifications for grouping species into PFTs or biomes are needed to adequately represent the dynamics of ecosystem functioning and structure.