The Terraform lookup function is a built-in feature that retrieves values from map variables or lists of objects. It takes three arguments: the name of the map variable, the key to be retrieved, and an optional default value. If the key exists in the map, the function returns its value; otherwise, it returns the default value. The lookup function can be used with map variables, Terraform resources/datasources, and lists of objects. It simplifies data management and is useful for various infrastructure configurations defined using Terraform HCL.