Web 2.0 refers to web applications that enable user interaction and collaboration online. It allows users to participate on websites through features like search, links, user-generated content like tags, and syndication of content through RSS feeds. Examples provided include Animoto, which allows users to create videos from photos and music, Kidblog for student blogging in a secure classroom environment, and Google Docs, which offers free online word processing, spreadsheets, and presentations for collaborative work.