The LacZ protein codes for an enzyme called β-galactosidase, which is an essential part of the metabolism of lactose. It cleaves (separates) a single disaccharide lactose molecule into far more digestible glucose and galactose. The enzyme also has the ability to catalyze the conversion of lactose to allolactose, or to attach allolactose to monosaccharides. LacZ is one of the more well-known components of the lac operon (which codes for the transport and digestion of lactose in E. coli), due to its extensive use in genetics research in the earlier part of the 20^th century up to the present day.

An in-depth discussion and analysis of β-galactosidase was published in Protein Science, available here:

https://www.ncbi.nlm.nih.gov/pmc/articles/PMC3575911/