A Data Flow Diagram (DFD) is a graphical representation of data movement and storage in a system. A DFD shows Processes that transform inputs into outputs, connected by Flows of data. Data is stored in Data Stores. External entities that interact with the system are shown as Terminators. Processes, Flows, Data Stores, and Terminators are the key components of a DFD, which provides a high-level view of data handling within a system.