Java uses streams to handle input/output operations. Streams provide a standardized way to read from and write to various sources and sinks like files, networks, and buffers. There are byte streams that handle input/output of bytes and character streams that handle characters. Common stream classes include FileInputStream, FileOutputStream, BufferedReader, and BufferedWriter which are used to read from and write to files and console. Streams can be chained together for complex I/O processing.