Serverless functions on Netlify allow developers to deploy server-side code as API endpoints, spinning up automatically when triggered by an event and handling the request before spinning down. This enables faster iteration, quick deployments, and abstracts away the setup and maintenance of a physical server. With pros including lowered barrier to entry for devs, inexpensive, and faster iteration, cons include not being built for long-running processes and being stateless. Serverless functions on Netlify can be customized by adding custom headers and using event parameters to manipulate data before returning it to the frontend. This allows developers to solve business needs with a wider range of tools and techniques without needing to manage any infrastructure.