Skype is a free communication software that allows video calls, instant messaging, and file sharing between users. It uses a Voice over Internet Protocol (VoIP) system to transmit calls by converting voice signals into compressed data packets and sending them over the Internet. While Skype has advantages like ease of use and high quality audio, security and privacy cannot be guaranteed due to factors like the security of users' computers and networks, potential third parties accessing data, and Skype's ability to record conversations.