Netlify Identity is a web app development feature that delegates authentication functionality, allowing developers to easily manage user data and login processes. The feature provides various tools such as storing user information, triggering serverless functions on validation events, generating custom emails, and accessing user information. By leveraging the open-source GoTrue API, Netlify Identity can be added to a site with a simple script tag and widget inclusion. This allows developers to create a seamless authentication experience for their users.