They're used as "higher-order" functions. Basically, for cases where you pass one function to another, so that the receiving function can call the passed-in one according to its own logic.
This is common in Ruby for iteration, e.g. some_list.each { |item| ... } to do something to each item of some_list. Although notice here that we don't use the keyword lambda; as noted, a block is basically the same thing.
In Python (since we have a language-agnostic tag on this question) you can't write anything quite like a Ruby block, so the lambda keyword comes up more often. However, you can get a similar "shortcut" effect from list comprehensions and generator expressions.