Test-driven development (TDD) is a software development process where unit tests are written before code to define desired functionality through a series of short cycles: write a test, see it fail, write minimum code for it to pass, refactor code. Key benefits include more modular/extensible code, catching defects early, and increased confidence through thorough test coverage. Shortcomings include lack of full functional testing and risk of false sense of security if tests have same blind spots as code.