Transactional analysis is a theory developed by Eric Berne in the 1950s to study interactions between individuals. It views communication as occurring through three ego states - Parent, Adult, and Child. The Parent ego state represents learned behaviors from caregivers, the Adult focuses on processing information objectively, and the Child contains emotions from one's own childhood. Effective communication involves understanding which ego states are being used and balancing positive and negative strokes, which are units of recognition between individuals. Transactional analysis aims to improve interactions by analyzing complementary, crossed, and ulterior transactions.