Sed is a command-line utility in Unix and Unix-like operating systems used for parsing and transforming text. It stands for "stream editor" and allows users to perform basic text manipulations, such as substitution, deletion, and insertion of text within files or input streams. The primary function of sed is to process text line by line, applying specified commands to each line. It is commonly used in shell scripts and can handle large files efficiently, making it a powerful tool for system administrators and developers who need to automate text processing tasks.