Environment variables are values stored outside of a program that can affect how it runs, allowing for more flexibility and portability. They can be used to define program arguments, specify domain names, store API keys, set path variables, and more. By using environment variables, developers can separate configuration details from application logic, enhancing security, maintainability, and adaptability. The Java standard library provides an easy way to access and manipulate environment variables, allowing developers to retrieve single or all variables, check for null values, and load configurations from files. Setting environment variables directly within a Java application is not straightforward but can be achieved through operating system-level settings, subprocesses, IDE configuration, build tools, or loading configurations from files.