Neural networks are mathematical models used in machine learning that consist of interconnected nodes, or neurons, organized in layers. These networks utilize activation functions such as Sigmoid, ReLU, Tanh, and Softmax to introduce non-linearity into the model. Optimization techniques like Stochastic Gradient Descent and Adam are employed to train the network by minimizing a chosen loss function, such as Mean Squared Error or Cross-Entropy. Regularization methods like L1 and L2 regularization, as well as techniques like Dropout and Early Stopping, are used to prevent overfitting and improve generalization.