An applet is a special type of program embedded in a webpage to generate dynamic content. It runs inside the browser at the client side. Advantages of applets include less response time since they run on the client side and can run on multiple platforms. The lifecycle of a Java applet includes initialization, start, paint, stop, and destruction. The Applet class provides lifecycle methods like init(), start(), stop(), and destroy(). To create an applet, the Applet class must be extended and its lifecycle methods can be overridden.