The Dijkstra algorithm is used to find the shortest path between a source node and all other nodes in a graph. It works by assigning initial distances from the source node of infinity for all other nodes. It then repeatedly selects the unvisited node with the lowest distance, calculates the distance through it to each neighbor, and updates distances if shorter than the previous value. It returns the shortest distances and predecessors for each node. The algorithm works for both directed and undirected graphs that are connected.