Tokenization is a foundational process in natural language processing (NLP) that involves breaking text into smaller units called tokens, which can be words, characters, or subwords. It plays a critical role in various NLP applications such as machine translation, sentiment analysis, and named entity recognition, while also facing challenges like ambiguity and out-of-vocabulary words. Multiple tokenization methods exist, including whitespace, rule-based, statistical, and subword tokenization, each with its own advantages and challenges depending on the linguistic context.