Netlify Functions provides a way to utilize serverless functions in Angular applications, managing infrastructure and creating a wrapper around AWS Lambda functions for easier use. To set up a Netlify Function, developers need to create a bare-bones function with parameters such as event and context, which can be used to pass data and retrieve information about the request. The function can return a promise with an HTTP status code and body, allowing for dynamic data display on the page. With Netlify Dev, developers can test their functions locally without deploying, and once set up, they can deploy their project to Netlify and see their live site's dashboard and logs.