File handling in C enables programs to create, read from, write to, and delete files stored on the local file system. The fopen() function opens a file and returns a file pointer, which is then used with functions like fprintf() and fscanf() to write to or read from the file. The fclose() function closes the file and frees up resources. Other useful file handling functions include fputc()/fgetc() to write/read single characters, fputs()/fgets() for strings, fseek() to set the file position, and rewind() to reset to the beginning.