It is the key that allows the standard keys on the keyboard to have additional "functions". Common uses for the function key include turning the keys IOPKL;M,. into a number pad. Also function keys are used for things like lowering and raising the speaker volume, putting the laptop into sleep/hibernate mode, changing the display used for output, and launching favourite applications.
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Function buttons, usually labeled "Fn", are hotkeys used in combination with another key to access features of the computer. They simply make tasks easier and quicker to access.
Use of the function key usually requires you to press-and-hold it, then press another key (note that most function keys are labeled in blue for easy recognition) in order to activate the feature.
Check out the functions on your laptop keyboard (the blue printing). Often the following features can be accessed using the function hotkeys: Turn sound on/off (Mute), Screen Brightness, Sleep/Hibernate Mode, CRT/LCD Mode, Wireless On/Off, and another way to enter numbers. For instance, if you want to turn off the wireless mode, you would press and hold the function key, then press the key with a blue tower ((A)) looking icon on it.
At least on mine, it is just to the left of the spacebar, and is labeled with blue text, marked "Fn" (for "Function")