An oracle is a third-party service that retrieves and verifies external data to enable smart contracts to interact with off-chain data. Smart contracts are self-executing programs that run on a blockchain network and cannot access external data sources on their own. Oracles act as intermediaries by retrieving and verifying data from external sources and sending it to the blockchain network. There are different types of oracles, such as software-based, hardware-based, and consensus-based oracles. Oracles are crucial in enabling blockchain networks to be used for a wide range of applications beyond cryptocurrency and financial transactions.