The Naive Bayes algorithm classifies data points into classes based on probability. It calculates the prior and likelihood probabilities of each feature for each class using the training data. The posterior probabilities are then computed using Bayes' theorem. For a new data point, the algorithm predicts the class with the highest posterior probability. The program implements Naive Bayes by encoding categorical classes numerically, splitting data into training and test sets, computing mean, standard deviation and probabilities for each class, and making predictions on the test set.