Network Flow Theory is a mathematical framework used to analyze the flow of resources through a network. It involves nodes, which represent points of supply or demand, and edges, which represent the paths connecting these points. The goal is to optimize the flow from a source node to a sink node while respecting capacity constraints on the edges. This theory is widely applied in various fields, including transportation, telecommunications, and supply chain management. By using algorithms like the Ford-Fulkerson method, it helps in finding the maximum flow possible in a network, ensuring efficient resource distribution.