Virtual functions allow for runtime polymorphism in C++. A virtual function in a base class can be overridden in a derived class, and calling the function through a base class pointer will execute the derived class's version at runtime based on the actual object type. Method overriding replaces the implementation of a function in the base class with a specific implementation in the derived class, as long as the signature (name, parameters, return type) remains the same. This differs from overloading, which involves functions with the same name but different parameters within the same class and is resolved at compile time rather than runtime.