Perplexity is an AI tool primarily used in Natural Language Processing to evaluate how well a probability model predicts a sample. It is a measure of the uncertainty of the prediction, where a lower perplexity score indicates the probability distribution of the prediction is more concentrated, thus yielding better performance. Key features include its ability to evaluate language models by calculating the inverse probability of the test set, normalized by the number of words, and its wide usage in tasks like machine translation, speech recognition, and text generation.