Simulated annealing is a variation of hill climbing that allows downhill moves to escape local optima. It is inspired by the physical process of annealing metals, where the material is slowly cooled to reach a minimal energy state. The algorithm starts with a high "temperature" that allows worse solutions to be accepted, then gradually lowers the temperature according to a schedule. This allows exploration of the solution space before focusing on local hill climbing to find the global optimum solution.