Packages in Java allow grouping of related classes and interfaces to avoid naming collisions. Some key points about packages include: - Packages allow for code reusability and easy location of files. The Java API uses packages to organize core classes. - Custom packages can be created by specifying the package name at the beginning of a Java file. The class files are then compiled to the corresponding directory structure. - The import statement and fully qualified names can be used to access classes from other packages. The classpath variable specifies locations of package directories and classes.