When building a distributed system, timeouts and retries are crucial components that can significantly impact the reliability and usability of the system. A timeout is an upper limit set on how long a call across the network can take before it's considered failed. Without proper timeouts, resources can be exhausted, leading to service crashes or poor performance. However, if not implemented correctly, timeouts can also cause issues such as wasted resources and delayed responses. Retries are another essential component that helps handle transient errors and improve customer experiences by retrying calls multiple times until they succeed. However, retries can also lead to delays, reduced throughput, and potential side effects like overcharging customers. Engineering teams must carefully consider the tradeoffs involved in using timeouts and retries, weighing factors such as product usability, UX, and system performance to determine the optimal configuration for their distributed systems.