  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 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.
