Edge AI allows devices like self-driving cars to make decisions immediately using on-device processing rather than cloud-based processing, which introduces latency. Edge AI processes data and inferences locally on IoT and sensor devices. This enables applications like self-driving cars using computer vision to detect humans and stop in real-time. While Edge AI provides benefits like lower latency, security, and data privacy, it also faces limitations in processing power and operational complexity compared to cloud-based AI.