https://github.com/wikimedia/mediawiki/blob/master/includes/parser/Parser.php#L4873-L4882

Similar to extension tags, but parsed at the preprocessor level. So, if one was nested in a template, we'd only get back the rendered result when calling for template expansion, which means implementing them natively, as in T110909, won't work.

Code search tells me it's currently only being used in,
https://codesearch.wmflabs.org/search/?q=setFunctionTagHook&i=nope&files=&repos=

extensions / Description2

(which uses it to set parsing state anyways, which doesn't work, T95081)