Differential protection relays operate by comparing electrical quantities on both sides of a circuit. They provide precise unit protection for equipment. There are several types, including current, voltage, biased, and voltage balance differential relays. Current differential relays compare currents entering and leaving a system, while voltage balance relays use pilot wires and current transformers to compare voltages induced at both ends of a protected feeder. Differential relays have advantages like fast operation for very close internal faults and less incorrect operation during external faults.