Threads allow multiple tasks to run concurrently within a single Java program. A thread represents a separate path of execution and threads can be used to improve performance. There are two main ways to create threads: by extending the Thread class or implementing the Runnable interface. Threads transition between different states like new, runnable, running, blocked, and terminated. Synchronization is needed to prevent race conditions when multiple threads access shared resources simultaneously. Deadlocks can occur when threads wait for each other in a circular manner.