Data deduplication is a technique to eliminate redundant data and reduce storage needs. It works by identifying identical data chunks using cryptographic hash signatures and storing only one copy of each unique chunk. Chunking refers to dividing files into smaller chunks which are then analyzed to find duplicates. There are different approaches to chunking, including fixed-size, variable content-defined sizes, and frequency-based chunking. Chunk-level deduplication identifies redundancy at a finer granularity than file-level deduplication and is generally more efficient, though it requires an effective chunking algorithm to maximize deduplication benefits.