Li-Fi is a technology that uses light from LED bulbs to transmit data wirelessly. It was invented by Professor Harald Haas in 2011 as an alternative to Wi-Fi that uses radio waves. Li-Fi works by varying the intensity of light from an LED bulb faster than the human eye can detect to transmit digital signals. It has applications in traffic lights, underwater communication, and street lamps that can each act as access points. Potential limitations include interruptions from external light sources and higher installation costs compared to Wi-Fi.