The significance of cell differentiation in development lies in its role in creating specialized cells for various functions. During embryonic development, undifferentiated stem cells undergo differentiation to form distinct cell types, such as neurons, muscle cells, and epithelial cells, each with unique structures and roles. This process allows for the formation of complex tissues and organs, enabling organisms to develop properly and perform specific physiological functions. Understanding cell differentiation is crucial for fields like regenerative medicine, where manipulating this process can lead to therapies for various diseases.