In Python, parameters are essential components of function definitions that act as placeholders for the values (arguments) that will be passed to the function when it is called. They allow developers to create flexible and reusable code by specifying what inputs a function can accept. Parameters can be categorized into mandatory, optional, and variable-length types, such as *args and **kwargs, which enable functions to handle a varying number of arguments. Understanding how to effectively use parameters is crucial for writing efficient and organized Python code, especially in complex applications and data science workflows.