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 non-thermal 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 non-thermal part as well. In

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... this short review, we highlight some key recent developments. Observationally, although so far it was clearly identified only in a minority of bursts, there are indirect evidence that thermal component exists in a very large fraction of GRBs, possibly close to 100%. Theoretically, the existence of thermal component have 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.