The k-nearest neighbors (kNN) algorithm assumes similar data points exist in close proximity. It calculates the distance between data points to determine the k nearest neighbors, where k is a user-defined value. To classify a new data point, kNN finds its k nearest neighbors and assigns the most common label from those neighbors. Choosing the right k value involves testing different k and selecting the one that minimizes errors while maintaining predictive accuracy on unseen data to avoid underfitting or overfitting. While simple to implement, kNN performance degrades with large datasets due to increased computational requirements.