The Cayley-Hamilton theorem states that every square matrix satisfies its own characteristic equation. It was independently discovered by Arthur Cayley and William Rowan Hamilton in the 1850s. Cayley proved it for 2x2 and 3x3 matrices, while Hamilton proved it for quaternion matrices. The theorem allows powers of a matrix A to be expressed as combinations of lower powers of A, which has applications in finding inverses and powers of matrices. This is useful in fields like robotics, encryption, and electrical circuits.