Firefly is a suite of tools that enables two-way communication between Grasshopper and an Arduino microcontroller using sensors and actuators. It allows parameters in a Grasshopper definition to be controlled by sensor data from an Arduino, and for Grasshopper parameters to control physical outputs like motors and LEDs connected to the Arduino. The document provides instructions for installing Firefly, uploading the Firmata sketch to enable communication, using the Firefly components in Grasshopper to read sensor values and write to pin outputs, and setting up the connection between Grasshopper and the Arduino.