Normalization is the process of decomposing relations with anomalies to produce smaller well-structured relations. There are several normal forms including first normal form, second normal form, and third normal form. The normal forms address issues like modification anomalies, redundancy, and inconsistent data that can occur when data is not properly structured. An example of employees and courses data is used to demonstrate how normalization reduces anomalies like insertion, deletion, and modification anomalies by splitting the data into separate relations.