Function calling and tool usage are pivotal in enhancing AI models like Claude 3. They address limitations by allowing models to perform calculations, access up-to-date information, and more. This video delves into the specifics of defining tools, their descriptions, input schemas, and best practices. It also provides a practical example of a customer service chatbot that utilizes client-side tools for various functions, demonstrating the process of selecting and implementing tools within a model. The video emphasizes detailed tool descriptions for accurate tool selection and highlights the importance of clear documentation for effective tool behavior. It concludes with a demonstration of function calling in action, showcasing how tools can improve AI responses and interactions.