Galaxies and their dark-matter halos have posed several challenges to the Dark Energy plus Cold Dark Matter (ΛCDM) cosmological model. These discrepancies between observations and theory intensify for the lowest-mass ('dwarf') galaxies. ΛCDM predictions for the number, spatial distribution, and internal structure of low-mass dark-matter halos have historically been at odds with observed dwarf galaxies, but this is partially expected, because many predictions modeled only the darkmatter component. Any robust ΛCDM prediction must include, hand-in-hand, a model for galaxy formation to understand how baryonic matter populates and affects dark-matter halos. In this article, we review the most notable challenges to ΛCDM regarding dwarf galaxies, and we discuss how recent cosmological numerical simulations have pinpointed baryonic solutions to these challenges. We identify remaining tensions, including the diversity of the inner dark-matter content, planes of satellites, stellar morphologies, and star-formation quenching. Their resolution, or validation as actual problems to ΛCDM, will likely require both refining galaxy formation models and improving numerical accuracy in simulations.