Project Ara is Google's modular smartphone project that allows users to customize their device by adding or replacing hardware modules. It consists of an endoskeleton frame onto which modules like displays, processors, batteries and more can be inserted or swapped out. This makes the phone customizable for each user's needs, reduces e-waste by replacing only parts that need upgrading, and opens the market to third-party module manufacturers. While it offers significant customization benefits, challenges include potential damage from module swapping, compatibility issues between certain module combinations, and higher prices of individual modules.