Quality circles are small voluntary groups of 6-12 employees who meet regularly to identify and solve work-related problems in order to improve quality. They operate on the principle that employee participation in decision making and problem solving leads to better quality work. Key characteristics of quality circles include being voluntary, establishing rules and priorities by consensus, and receiving support from senior management. They were started in Japan in 1962 and aim to provide benefits like increased productivity, improved quality of life, and enhanced creativity.