Pry is a powerful alternative to the standard IRB shell for Ruby that provides features like syntax highlighting, plugin support, and runtime invocation. It allows debugging Ruby code through its interactive read-eval-print loop (REPL) and magic commands. These magic commands include ls to list methods, show-source to view method source code, show-doc to view documentation, breakpoints, and more. Pry can help with test-driven development by allowing quick testing and fixing of code.