A categorical variable is a type of data that represents distinct categories or groups. Unlike numerical variables, which can take on a wide range of values, categorical variables are limited to specific, predefined options. For example, responses to a survey question about favorite colors might include categories like “Red,” “Blue,” and “Green.” These variables are essential in data analysis and machine learning, as they help categorize and interpret data effectively. However, they often require preprocessing before being used in models, as most algorithms cannot directly handle categorical data without transformation. Understanding categorical variables is crucial for effective data analysis.