An applet is a Java program that runs in a web browser. It is embedded in a web page and generates dynamic content on the client-side. Applets have several advantages, including faster response times and cross-platform compatibility. The lifecycle of an applet includes initialization, start, paint, stop, and destruction methods. To create an applet, developers inherit from the Applet class and implement its lifecycle methods. Applets can be run from an HTML file or using the appletviewer tool for testing purposes.