Test-driven development (TDD) is an iterative process where tests are written before code to validate requirements. It follows the "red-green-refactor" cycle: write a failing test, write code to pass the test, refactor code. The document demonstrates TDD with a palindrome checker function, writing multiple tests to handle different cases before refactoring the code. Unit testing frameworks like unittest, py.test, and nose make TDD easier by automating test discovery and providing features like parallel testing and code coverage reports. Nose is currently the most popular alternative to unittest for Python projects.