Python's "TypeError: unhashable type: 'list'" occurs when a mutable list is used as a dictionary key or set element, which is not allowed because lists do not have a stable hash value. To resolve this, converting lists to immutable tuples, using tuple literals from the start, or choosing alternative data structures like frozensets for unordered collections is recommended. This error typically arises in situations like using lists as dictionary keys, adding lists to sets, or performing operations in pandas DataFrames that require hashable types. Best practices to avoid this error include considering mutability when selecting data structures, converting lists to tuples early, and handling pandas DataFrame columns with care. Additionally, tools like Rollbar can assist in managing and tracking errors in real-time, making error monitoring and resolution more efficient.