APIs, or Application Programming Interfaces, allow for third-party service integration by providing standardized protocols that enable different software applications to communicate. Through APIs, developers can access and utilize functions or data from external services, enhancing their own applications without needing to build everything from scratch. This modular approach promotes innovation by allowing developers to focus on core functionalities while leveraging existing services. APIs also facilitate data exchange, improve interoperability between platforms, and support seamless user experiences, making them essential in modern software development landscapes.