Huffman coding is a lossless data compression technique that converts fixed length codes to variable length codes. It assigns shorter codes to more frequent characters and longer codes to less frequent characters. This allows for more efficient data storage and transmission. The key steps are to create a frequency table of characters, construct a binary tree based on frequencies, and extract the Huffman codes from the tree. Huffman coding can significantly reduce file sizes by achieving better compression than fixed length codes. It is used widely in file formats like ZIP, JPEG, and MPEG.