Microservices are an architectural style where a single application is composed of a suite of small services that communicate with each other via open protocols. The key principles of microservices are that services are very small, independently deployable and upgradable, and encapsulate a business capability. Microservices provide benefits like faster development cycles, fault isolation, and easier scaling, but also challenges like complexity in distributed systems and inter-service communication. Microservices may be suitable if an organization needs to develop and scale faster and teams are accustomed to distributed development, but may not be suitable if teams are not agile or the infrastructure is traditional.