Dexter Blackstock's first-half goal, his sixth of the season, was enough to see Forest edge past Newcastle as the Magpies conceded top spot in the table to West Brom.
Forest climbed to seventh on the back of the win, but Davies is aware there is much work ahead of them.
"I thought we were excellent in the first half and could have been two or three goals to the good," he said.
"But Newcastle showed what a good side they are after half-time and also showed us what we have to aspire to.
"Compared to them we are very much a work in progress but I am very proud of the way my players are maturing and developing.
"We gave the ball away too many times in the second half and by shooting ourselves in the foot it might have cost us.
We were on the back foot for too long but we showed a lot of character to hang in there and protect the lead we had earned.
"But we are learning and improving all the time and games like this can only help us in our development."
Davies also recommended to Newcastle that they give the vacant managerial position to Chris Hughton and Colin Calderwood for the "job they have done in very difficult circumstances".
Hughton was left to reflect on how to improve on a run that has now yielded just two points out of a possible nine as they prepare to face up to another demanding test of their
credentials against Scunthorpe on Tuesday night.
"We paid the price against Forest for a poor first half performance when they were much better than us," he said.
"I just wanted to get the players in without conceding a goal and see if we could change and improve things.
"But Forest scoring just before half-time left us with a bigger challenge and although we responded to it, we just could not get the break.
"We knew how difficult it would be against Forest because they have been in an excellent run but we were looking to get something from the match.
"It's not pleasant to be leaving here without something but we are still at the end of the table where we want to be."
Blackstock's winner caught Newcastle out of position as Polish midfielder Radoslaw Majewski slid the ball through for the former QPR striker to beat the advancing Steve Harper.
Both sides also hit the woodwork during the contest, Blackstock with a header and Newcastle's Ryan Taylor from a free-kick.