InfluxDB 3's Python Processing Engine allows developers to create plugins that standardize IoT data from diverse sources. By normalizing units and naming conventions during data ingestion, teams can simplify downstream queries, ensure consistency across datasets, and improve the reliability of their analytics. The tutorial guides users through creating a plugin directory, starting an InfluxDB 3 container with Docker, writing a Python script to handle data standardization, testing the plugin, enabling it as a trigger, and verifying its functionality. With this setup, developers can create standardized, well-structured data for easier querying, analysis, and compliance with industry standards.