Rate limiting is used to prevent abuse or excessive usage of an API by limiting the number of requests from a client within a specified time frame. This helps make APIs more reliable and prevents denial-of-service attacks. The main challenges with rate limiting in API gateways are scalability, especially when running on multiple instances, and implementing algorithms that can handle various request metadata and properties. One solution to overcome these limitations is using an external service, such as Redis or a custom-built service, to manage the rate limiting data, allowing for flexibility and better performance. The use of a service mesh like Envoy Proxy also enables scalability and fault tolerance when integrated with an external rate limiting service. Rate limiting can help protect against bad actors, prioritize traffic for paying customers, and prevent system crashes due to excessive requests.