A .py file is a text file containing Python source code. The '.py' extension indicates the file holds Python programming instructions written by developers, not compiled machine code. This human-readable text format allows the Python interpreter to translate and run the code line-by-line on any system with Python installed, unlike compiled languages that generate processor-specific executable files beforehand.

Developers primarily use .py files to write scripts for automation, data analysis, web applications, and software development. For instance, a simple backup_script.py could automate copying files on a schedule, while a complex web_app.py built using frameworks like Django or Flask defines the logic for a dynamic website. Integrated Development Environments (IDEs) like PyCharm or VS Code extensively work with .py files for writing, debugging, and running Python projects.

Python's clear syntax makes .py files relatively easy to learn, contributing to its widespread popularity in education, scientific computing (like data science with Pandas/NumPy), and web development. However, interpreted execution can be slower than compiled languages for computationally intensive tasks, and distributing source code requires users to have Python present. Future Python versions continue to focus on improving performance to mitigate this limitation while maintaining the language's accessibility.