Functions are blocks of reusable code that perform specific tasks. There are three types of functions in Python: built-in functions, anonymous lambda functions, and user-defined functions. Functions help organize code by breaking programs into smaller, modular chunks. They reduce code duplication, decompose complex problems, improve clarity, and allow code reuse. Functions can take arguments and return values. Built-in functions are pre-defined to perform operations and return results when given the required arguments.