Carrying capacity refers to the maximum population size that an environment can sustain indefinitely. It is determined by factors such as availability of resources like food, water, and shelter, as well as competition between individuals for these resources. When a population exceeds its carrying capacity, resources become scarce, leading to increased competition, reduced growth rates, and potentially population decline. Carrying capacity is an important concept in ecology as it helps us understand how ecosystems function and how populations interact with their environments.