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A major breakthrough in our understanding of gamma-ray bursts (GRB) prompt emission physics occurred in the last few years, with the realization that a thermal component accompanies the over-all nonthermal prompt spectra. This thermal part is important by itself, as it provides direct probe of the physics in the innermost outflow regions. It further has an indirect importance, as a source of seed photons for inverse-Compton scattering, thereby it contributes to the nonthermal part as well. In this short review, we highlight some key recent developments. Observationally, although so far it was clearly identified only in a minority of bursts, there is indirect evidence that a thermal component exists in a very large fraction of GRBs, possibly close to 100%. Theoretically, the existence of a thermal component has a large number of implications as a probe of underlying GRB physics. Some surprising implications include its use as a probe of the jet dynamics, geometry and magnetization. [ABSTRACT FROM AUTHOR]