Mushrooms are used as currency for Learning (and Relearning) moves taught by an Egg Move Tutor.
- Big Mushroom: Used to learn a Move
- Tiny Mushroom: Used to relearn a previous Move
There is a daily quest in Route 4 (before Cerulean City, after Mt. Moon) to help a girl get Mushrooms from trees. You’ll have a chance at a Big Mushroom.
You can also farm Mushrooms from Paras & Parasect by defeating them in combat in the wild.