Epithelial dysplasia refers to disturbances in epithelial cell proliferation and differentiation seen microscopically. It is characterized by cellular atypia and graded as mild, moderate, or severe. Key features include basal cell hyperplasia, abnormal mitosis, nuclear hyperchromatism, increased nuclear-cytoplasmic ratio, dyskaryosis, poikilokaryonosis, loss of polarity, anisocytosis, koilocytosis, and individual cell keratinization.