Artificial intelligence works by ingesting large amounts of labeled training data to analyze for patterns and correlations. These patterns are used to make predictions about future states. There are four types of AI: 1) Reactive Machines that perform basic operations without learning; 2) Limited Memory types that can store previous data/predictions to make better predictions; 3) Theory of Mind types that begin to interact with human thoughts and emotions; and 4) hypothetical Self Aware types with independent intelligence. The document discusses several applications of AI including healthcare for drug development, robotics for delivery, and education for automating administrative tasks.