An applet is a Java program that runs within a web browser. It is embedded in an HTML page using tags and runs on the client-side. Applets allow websites to be more dynamic and interactive. All applets extend the Applet class and run within a browser or applet viewer rather than as standalone programs. The code is downloaded from a web server when the page loads and output is handled using AWT methods rather than System.out. For security, applets have restricted access to client files and networks.