Chapter 2 outlines the concepts of intelligent agents and their environments, emphasizing the importance of rationality and the Performance Measure-Environment-Actuators-Sensors (PEAS) framework. It delineates various environment types such as fully observable, deterministic, static, and episodes, alongside different agent types from simple reflex agents to more complex utility-based agents. The chapter highlights that the design of an intelligent agent is heavily influenced by the characteristics of the environment it operates in.