IPFS is a decentralized peer-to-peer file sharing and storage system that uses content addressing to identify files. It leverages ideas from previous P2P systems like BitTorrent. In IPFS, files are identified by their hash rather than location, and nodes store content addressed blocks that are exchanged using a BitSwap protocol. Multiple versions are tracked using a Merkle DAG structure. IPFS can serve as a decentralized storage solution for blockchain applications by storing file data off-chain while linking to the hashes on-chain.