Prototypal inheritance is the mechanism by which objects in JavaScript inherit properties and methods from other objects, forming a prototype chain. Each object has an internal link to its prototype (also known as __proto__). When a property or method is accessed on an object, JavaScript searches for the property/method in the object itself and then in its prototype chain until it finds the property or reaches the end of the chain (i.e., the root Object.prototype). This concept allows objects to inherit and share functionality, leading to code reusability and a more memory-efficient way of handling similar objects.