Tissue fluid, or interstitial fluid, is crucial for the exchange of substances between cells and blood, making up about 20% of extracellular fluid. Its formation occurs through filtration driven by hydrostatic pressure at the arterial end of capillaries, while reabsorption takes place at the venous end due to the opposing oncotic pressure. The balance of filtration and reabsorption helps regulate tissue fluid volume, influenced by Starling forces.