Version 3 UUIDs are name-based and are generated by hashing a namespace identifier with a name using the MD5 hashing algorithm. This version is deterministic, meaning the same input will always produce the same UUID. It's particularly useful when a consistent identifier for a name within a namespace is needed. For example, generating unique identifiers for users' emails within a certain domain. The drawback is that MD5, while fast, is not collision-resistant in cryptographic terms, which could be an issue in security-sensitive applications.