Pointers allow a variable to hold the memory address of another variable. A pointer variable contains the address of the variable it points to. Pointers can be used to pass arguments to functions by reference instead of by value, allowing the function to modify the original variables. Pointers also allow a function to return multiple values by having the function modify pointer variables passed to it by the calling function. Understanding pointers involves grasping that a pointer variable contains an address rather than a value, and that pointers enable indirect access to the value at a specific memory address.