CSS3 is an update to the CSS2.1 specification that introduces many new features and modules. Some key CSS3 modules include selectors, backgrounds and borders, text effects, transformations, transitions, multiple columns, and user interface. CSS3 allows for rounded borders using border-radius, box shadows using box-shadow, and image borders using border-image. Other CSS3 properties include text-shadow, word-wrap, transforms like rotate and scale, transitions for animated effects, multiple columns layout, and user interface features like resizing and outlines. Support for CSS3 varies across browsers.