The Terraform coalesce function is a collection function that takes any number of arguments and returns the first non-null or non-empty string. It is useful for setting default values, handling missing data, and prioritizing different value sources. The try function, on the other hand, executes a sequence of expressions and returns the first one that doesn't produce an error. Coalesce is more suited for simple defaults and missing attributes, while try is used where conditional logic is required and for handling failures.