saying
f = lambda x, y : x + y
is almost the same as saying
def f(x, y):
return x + y
in other words lambda returns a function that given the parameters to the left of the : sign will return the value of the expression on the right of it.
In respect to a function is however quite limited, for example allows only one expression and no statements are allowed. This is not a serious problem however because in Python you can define a full function even in the middle of another function and pass that instead.
The usage you shown is however quite bad bacause a lambda there is pointless... Python would allow to compute that sum directly instead of using reduce.
Also, by the way, for the result of that computation there is an easy closed-form solution that doesn't require any iteration at all... (hint: the sum of all numbers from 1 to n is n*(n+1)/2 and the sum of all multiples of 5 from 5 to n is 5*(sum of all numbers from 1 to n/5) ... therefore ...)