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They essentially function as a 'normally' hidden value with higher number meaning the pal gets that much more in that stat. Pokemon, again, normally has 6 with values between 0 and 31.
Palworld has 3: Health, Attack, and Defense with values ranging from 0 to 100.
I don't know the exact formula, you could maybe find it with some googling, but essentially bigger number is way better.
You can actually raise the IVs of a Pal with fruits you get from Dog Coin merchants and Raid Bosses, so just because your favorite pal with all the perfect passives has terrible IVs, it doesn't mean you can't improve them.
How the game converts base stats and level into actual stats, I don't know. I just know that's how the IVs work. That and the souls/condensation bonuses, they're all just simple multipliers and they do stack multiplicatively with each other.