Transactional Analysis is a social psychology theory that outlines how individuals develop ego states, relate to others, and communicate. It posits that people have three ego states - Parent, Adult, and Child - that influence behavior. The Parent ego state incorporates behaviors and beliefs learned from caregivers, the Adult deals with present situations rationally, and the Child represents emotional and impulsive reactions. Transactional Analysis aims to improve communication by encouraging balanced transactions between individuals' Adult ego states.