Functional interfaces are a key concept in Java, particularly introduced in Java 8. They are defined as interfaces that contain only one abstract method, which allows them to be implemented using lambda expressions. This feature enhances the expressiveness and conciseness of the code. The @FunctionalInterface annotation can be used to indicate that an interface is intended to be a functional interface, enabling the compiler to enforce the single abstract method rule. While developers can create their own functional interfaces, Java’s standard library already includes 43 built-in functional interfaces, categorized for various functional programming needs.