A load balancer in web hosting functions by distributing incoming traffic across multiple servers, ensuring no single server becomes overwhelmed. This improves website performance and enhances reliability by preventing downtime. Load balancers can manage requests at different layers, such as Layer 4 (Transport) and Layer 7 (Application), allowing for intelligent routing based on server health and request type. Additionally, they facilitate scalability, enabling businesses to accommodate growth by adding more servers into the pool seamlessly.