Polymorphism is the ability of an object to take more than one form and is a key concept in object-oriented programming, especially in Java, enabling different subclasses to be treated as objects of a single parent class. There are two types of polymorphism in Java: compile-time (static binding) through method overloading and runtime (dynamic binding) through method overriding. While polymorphism aids in code reuse and reduces coupling, it can also complicate implementation and impact performance.