Child themes in WordPress allow users to modify an existing parent theme without overwriting custom changes when the parent theme is updated, and provide additional functionality while maintaining the parent theme's look and feel. A child theme should contain only a style.css file that overrides the parent theme's styles and additional functions, residing outside the parent theme's folder to avoid conflicts with parent theme upgrades. The child theme's style.css imports the parent theme's stylesheet and makes custom changes without using !important declarations.