Federal courts play an essential role in interpreting laws by applying the Constitution and federal statutes to specific cases. They resolve disputes involving federal law and can interpret ambiguous laws, influencing how those laws are enforced. Through judicial review, federal courts have the power to declare laws or executive actions unconstitutional, thus acting as a vital check on legislative and executive authority. This role ensures the protection of individual rights and upholds the rule of law, thereby maintaining a balance among the branches of government in a democratic system.