Dijkstra's algorithm is a solution for the single-source shortest path problem in graph theory, applicable to both directed and undirected graphs with nonnegative edge weights. It operates by initializing distances, selecting the minimum distance vertex, and updating the shortest paths iteratively. The algorithm can have varying implementations, with the most efficient being the use of an adjacency list and priority queue, achieving a running time of O((|e| + |v|) log |v|).