Functional interfaces are a key concept introduced in Java 8, designed to facilitate the use of lambda expressions. A functional interface is defined as an interface that contains exactly one abstract method, allowing it to be implemented by a lambda expression or method reference. This feature enhances the expressiveness and conciseness of Java code, enabling developers to write cleaner and more readable functional-style programming. Additionally, the @FunctionalInterface annotation can be used to explicitly declare an interface as a functional interface, helping the compiler enforce the single abstract method rule. This promotes better coding practices and reduces errors in code design.