Decorators allow functions and classes to be modified by wrapping additional functionality around the original. There are two main types: function decorators, which take a function as a parameter and return a modified function, and class decorators, which return an object instead of a function. Decorators can add functionality before, after, or replace the original function or method. They are useful for logging, timing, authentication, and other cross-cutting concerns that can be applied to multiple functions without changing the code.