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ParserFunctions is an extension that is both (A) invaluable and (B) horribly confusing for the average Joe to understand simply from the very first sentence of it's description, but here the simple version.

Wikis, like most computer software with editable functions, use parsers, or programming that translate computer language to human language or vice versa, and in this case, this extension extends MediaWiki's stock parser with more cool functions so it can show more advanced templates than can be made by the average user by default.

The part that makes this practically necessary is that if you want to use a template from some of the larger wikis on the internet like Wikipedia, you will need this extension to make them function properly, since they make very heavy use of the features of this extension, and, once you have the know how to make use of the extension yourself, you too can write advanced templates that make use of this extension, so whether you write templates or just need them, this extension is practically indispensable to pretty much everyone of all skill levels.