Terraform is a tool for provisioning and managing infrastructure as code. It allows defining and deploying infrastructure through configuration files rather than interactive console tools. The configuration files describe the components needed for an application and their relationships, and Terraform uses this information to provision and update infrastructure safely and efficiently. Terraform works by defining resources such as compute instances, storage, and networking components using a high-level configuration language, and then generates and executes the plans to build, change, and version those resources. It supports a variety of cloud platforms including Azure.