Asynchronous Transfer Mode (ATM) is a packet-oriented digital transfer mechanism that uses fixed-sized cells for data transmission, allowing for flexible service quality at reasonable costs. It operates on a connection-oriented basis, where a path is established before data transmission, differentiating itself from the Internet's connectionless protocol. ATM supports various applications, such as WANs, multimedia networks, and broadband services, and offers benefits like dynamic bandwidth allocation and efficient traffic handling.