The document discusses K-means clustering, an unsupervised learning algorithm that partitions data into K clusters by minimizing variance. It works by iteratively assigning data points to the nearest centroid and updating centroid positions based on cluster means until convergence. The example shows initializing random centroids, assigning points to the closest centroid to form initial clusters, then recalculating centroids as the means of points in each cluster. This iterative process refines clusters with each update.