Relational algebra is a system for manipulating relations using operators like selection, projection, union, and join. It provides a theoretical foundation for query languages in relational databases. The key operators in relational algebra are selection (picking rows), projection (picking columns), product (combining relations), and join (combining rows from relations based on a condition). Relational algebra can be extended to bags (multisets) where elements can appear multiple times, affecting operations like projection, product, and join.