A properties file stores configuration data as key-value pairs that can be parsed by the java.util.Properties class. The document discusses different ways to configure properties in Mule, including using property placeholders, system properties, environment variables, and the mule-app.properties file. It provides an example of configuring a property in mule-project.xml and observes that properties in mule-app.properties take highest priority, followed by global variables, runtime arguments, environment variables, and other property files in alphabetical order.