There are different ways of using the pallets. As for our coop, I actually broke them down and used the wood like clapboard siding. I used some of the 2x4s on them in the frame.
If you are in a cold area and keep them intact, you can insulate and cover over the inside. We live in Alabama, so the cold weather isn't a major concern.
Pluses:
Free wood (cost)
A lot of hard wood in what I had (red oak and other)
I reused a lot of the nails
Minuses:
Breaking them down is time-consuming
Broke a hammer on that hard wood
Here's a couple pics of our coop as we were building it