Functions in Python are essential building blocks that allow programmers to encapsulate code into reusable segments. A function is defined using the def keyword, followed by a unique name and parentheses that may include parameters. This modular approach not only enhances code organization and readability but also reduces redundancy by enabling the same code to be executed multiple times with different inputs. Functions can return values, making them versatile for various programming tasks. By utilizing both built-in and user-defined functions, developers can create efficient and maintainable code structures, ultimately improving the overall functionality of their programs.