Property-based testing involves generating random inputs and checking that the output of a function satisfies desired properties or laws. It works by specifying properties as assertions that should hold true for all inputs. Testing libraries like ScalaCheck, QuickCheck, and Hypothesis can automatically generate random test values and attempt to falsify the properties. This helps test a wide range of inputs and edge cases. The document provides examples of using property tests to check if a sorting algorithm produces a sorted output and to validate data formats meet constraints. It also discusses generating customized input models and common properties like order relationships.