Webpack is a static build tool that creates a graph of all application dependencies, starting from an entry point. The entry point tells Webpack where to start and follows the graph of dependencies to bundle assets. Loaders transform files into modules as they are added to the dependency graph, while plugins perform actions and custom functionality on bundled modules. Plugins can be customized via options and require instances to access their features. Webpack's configuration object defines these key concepts, including entry points, output properties, loaders, and plugins.