Applets are small Java programs that run in web browsers. They have a lifecycle with methods like init(), start(), paint(), stop(), and destroy() that get called at different points. The init() method initializes variables, start() runs when the applet is displayed, paint() redraws the output, stop() runs when the browser closes, and destroy() removes the applet from memory. Sample code shows an applet class that extends Applet and overrides these methods to track calls and draw status messages. The status window can also be used to display messages to users.