Functions provide the core of PHP's programming functionality, and there are hundreds to choose from.
However, the chances are you are only going to use about twenty or so in common practice, so don't waste time trying to learn them all - that' what the manual is there for!
Writing your own functions eliminates code duplication, thereby reducing the likelihood of bugs, and making it easier for you to make changes to the code.
Passing by and returning by reference can often make your script more efficient, however it is important to note that objects are inherently passed by reference.
PHP's string manipulation functions are very powerful and very flexible, although it is worth your while always trying to use the least complicated function suitable for your purpose - don't bother with regexes when a simpler function will do.
Recursive functions are useful for a wide variety of tasks, whether it be printing a threaded messageboard index or path-finding in a game.