Scanning tunnelling microscopy and break-junction experiments realize metallic and molecular nanocontacts that act as ideal one-dimensional channels between macroscopic electrodes. Emergent nanoscale phenomena typical of these systems encompass structural, mechanical, electronic, transport, and magnetic properties. This Review focuses on the theoretical explanation of some of these properties obtained with the help of first-principles methods. By tracing parallel theoretical and experimental developments from the discovery of nanowire formation and conductance quantization in gold nanowires to recent observations of emergent magnetism and Kondo correlations, we exemplify the main concepts and ingredients needed to bring together ab initio calculations and physical observations. It can be anticipated that diode, sensor, spin-valve and spin-filter functionalities relevant for spintronics and molecular electronics applications will benefit from the physical understanding thus obtained.