AWS Lambda is an event-driven compute service that abstracts away the underlying physical computing infrastructure, allowing developers to focus on their code rather than the execution environment. Monitoring applications running in AWS Lambda presents unique challenges due to its serverless nature, but proper instrumentation can ensure observability even without traditional system metrics. Key performance metrics for Lambda functions include duration, invocations, errors, and throttles, which are available through AWS CloudWatch console. Custom metrics from Lambda functions can be used to track application performance, such as requests, responses, latency, and work done to service requests. Instrumenting entry and exit points of the application, as well as code segments where actual work is performed, allows for capturing high-resolution metrics on request rate, response time, and function duration. Combining and correlating metrics from all data sources provides a comprehensive view to diagnose performance issues and monitor overall system health. Datadog's machine learning-powered alerting features can automatically notify of potential issues, ensuring that the right person is alerted when necessary.