Rails engines allow developers to build reusable applications that can be mounted within other Rails applications. Engines define their own controllers, models, and other code within a module namespace. This forces developers to isolate dependencies and make their code reusable. The rails plugin generator can be used to generate the skeleton for a Rails engine, including options for a full engine with its own MVC structure or a mountable engine that is namespaced. Popular engines include Devise for authentication and Spree for e-commerce functionality.