ATCP was designed to improve TCP performance over multi-hop wireless networks by addressing problems caused by high bit error rates, route changes, and network partitions. ATCP monitors TCP and network states and places TCP in one of four ATCP states - Normal, Loss, Congested, or Disconnected - to determine appropriate actions like retransmitting packets or stopping transmission. ATCP aims to maintain TCP semantics while improving throughput in ad-hoc networks.