What it means
A model on its own can only write text. With tool calling, the application tells the model which tools exist, what they do and what inputs they need. When a question needs one, the model responds with a tool request. The application runs it, returns the result and the model continues.
MCP servers are a standard way to offer tools to AI assistants, and function calling is a closely related term.
Why it matters for a business
Tool calling turns AI from a writer into a worker that can look things up and take actions. It is the basis of agents and of assistants that answer with live data instead of guesses.
A business example
Things to watch
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Expose only the tools a task needs.
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Validate tool inputs before running them.
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Require approval for tools that change data.
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Log every call.