What are React Server Functions, and what does 'use server' mean?

Direct answer

Server Functions are async functions executed on the server that can be referenced from client-side code; 'use server' marks such a server function or module for an RSC-compatible framework.

actions.js

export async function updateProfile(formData) {
  "use server";

  const name = formData.get("name");
  await db.profile.update({ name });
}

Calling a Server Function from client code involves a network request with serialized arguments and a serialized result. Framework integration creates the client reference and transport.