Darragh Burke and Alex Kern, software engineers at Figma, writing on the Figma blog:

Building code layers in Figma required us to reconcile two different models of thinking about software: design and code. Today, Figma's visual canvas is an open-ended, flexible environment that enables users to rapidly iterate on designs. Code unlocks further capabilities, but it’s more structured—it requires hierarchical organization and precise syntax. To reconcile these two models, we needed to create a hybrid approach that honored the rapid, exploratory nature of design while unlocking the full capabilities of code.

The solution turned out to be code layers, actual canvas primitives that can be manipulated just like a rectangle, and respects auto layout properties, opacity, border radius, etc.

The solution we arrived at was to implement code layers as a new canvas primitive. Code layers behave like any other layer, with complete spatial flexibility (including moving, resizing, and reparenting) and seamless layout integration (like placement in autolayout stacks). Most crucially, they can be duplicated and iterated on easily, mimicking the freeform and experimental nature of the visual canvas. This enables the creation and comparison of different versions of code side by side. Typically, making two copies of code for comparison requires creating separate git branches, but with code layers, it’s as easy as pressing ⌥ and dragging. This automatically creates a fork of the source code for rapid riffing.

In my experience, it works as advertised, though the code layer element will take a second to render when its spatial properties are edited. Makes sense though, since it's rendering code.