Webpack is a module bundler that builds dependency graphs from entry points and combines modules into bundles. It allows developers to use a multi-file approach during development but bundle assets into fewer files for production. Loaders are used to bundle different file types like CSS. Plugins further customize the bundling process. Code splitting bundles common modules separately for better caching. Extracting CSS removes CSS invalidation on HTML changes. Tree shaking removes unused code automatically in production builds.