OSGi is a module system and service platform that improves modularity in applications. It defines bundles that encapsulate code and dependencies, and uses services to connect bundles dynamically at runtime. OSGi provides benefits like dynamic updating of bundles, versioning of multiple component versions, reduced complexity, and a small footprint. Bundles are implemented using JAR files and manifests define their exported packages and services. The OSGi specification also defines the lifecycle of bundles. Tools like Bndtools and Apache Felix can be used to develop with OSGi.