Formal communication refers to the transfer of information through official channels within an organization's chain of command, following rules and regulations. It maintains superior-subordinate relationships but can be time-consuming. Informal communication, also called the "grapevine", does not follow formal rules and can spread information randomly through personal networks faster but with less accuracy. While both have benefits, formal communication is necessary to achieve organizational goals and assign responsibility, while informal communication helps satisfy personal needs and reinforce relationships.