The classpath tells applications where to find third-party and user-defined classes. It defines the search order for classes and resources, including Java platform classes, extension classes, and user classpath entries. The classpath can be set using the -classpath option with Java tools or using the CLASSPATH environment variable, with -classpath being preferred. Classpath entries can refer to directories, JAR files, or ZIP files containing classes. Multiple path entries are separated by semicolons.