In MATLAB, a function handle is created using the '@' symbol followed by the function input and expression. This handle stores a reference to the function without running it immediately. When you call the handle with an input, MATLAB executes the function code and returns the result. For example, f = @(x) x^2 creates a function handle that squares its input. Calling f(3) runs the function with x=3 and returns 9. Variables change as the handle is created and then when the function is called. This lets you use functions flexibly in your code.