Microservices are an approach to application development where a large application is broken into smaller, independent services that communicate through well-defined interfaces. Each service focuses on a specific business goal and can be developed and deployed independently. Key characteristics of microservices include high maintainability, loose coupling, independent deployability, organization around business capabilities, and decentralized ownership. Transitioning from a monolithic architecture to microservices introduces challenges around inter-process communication, distributed transactions, service discovery, and increased need for automation. A microservices ecosystem typically includes load balancers, service discovery, API gateways, configuration management, monitoring, containerization, and circuit breakers.