A nested list is a way to organize related items into subcategories, similar to organizing files into folders and subfolders. Nested lists are useful when you have a large amount of information to display and want to categorize it for clarity. To create a nested list, you begin with the <ol> or <ul> tag to start an ordered or unordered list. The <li> tag is then used to designate each list item, and nested lists are created by including additional <ol> or <ul> tags within existing <li> tags. Examples are provided to demonstrate how to structure nested lists using HTML tags.