Chapter 2099
Super Freak
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What each figure's function is really depends on the game you use it for. Here are Mario's for example:
Game -> Function
Super Smash Bros for Wii U -> Customizable & trainable fighter
Mario Kart 8 -> Unlock Mario Racing Suit for Mii
Hyrule Warriors -> Unlock Weapon, Rupee, or Material bonus
Mario Party 10 -> Use Mario in amiibo party mode
Super Smash Bros for 3DS -> Customizable & trainable fighter
Ace Combat: Assault Horizon Legacy + -> Unlock Mario-themed F-22 plane
One Piece: Super Grand Battle! X (JP) -> Unlock Mario Costume for Luffy
In Smash Brothers, each figure is used to level up that specific character and make them stronger. With other games the figures usually unlock special weapons/costumes/skins/etc. They're completely enhancers to the game and not at all necessary.
And how do you make them 'stronger'? Via a concept like XP?