Event handling in Java uses the delegation event model. This model defines key participants in event handling - the source that generates an event, listener objects that process events, and an event object that provides event information. When an event occurs, the event object is passed to the registered listener's callback method to be processed. Common AWT events include action, item, mouse, key, text, and window events, which are represented by classes that extend the EventObject class. Listeners implement interfaces like ActionListener to receive and handle specific event types.