Windows can be placed on walls to let light in during the day, and out at night if there is a light inside. Large Windows do the same, but let more light in/out.
As of a recent update, your prisoners can suffer from 'overheating', a status effect which can affect performance in reform programs. Windows can help to counteract this effect and cool your prisoners down.
If the 'Weather & Temperature' option is on, your windows may let in cold air if it is cold outside. Consider installing radiators to counteract this as your prisoners will get cold and the same concept will apply, where your prisoners' ability to perform in reform programs will be negatively affected.
NOTE: Windows do not show on both sides of the wall, as they should (potential graphics bug, although it seems pretty permanent). There are mods which fix this.