When Lambda was announced at re:Invent 2014, many developers asked, "So is this a replacement for EC2?" No. Lambda does not replace EC2. Lambda answers a completely different question: "I don't want to decide when and where this code runs. I just want the code to run whenever an event happens." The essence of Lambda is eliminating the entire process of provisioning servers, managing the OS, planning capacity, and patching.
There really are servers behind it. Lambda being serverless means the user doesn't manage the servers — not that there are no physical servers. Internally, AWS runs Lambda functions in isolated execution environments using a microVM technology called Firecracker