url-loader is a webpack loader that transforms files into base64 URIs. It embeds files directly into your CSS or JavaScript, reducing HTTP requests for small assets. If a file's size exceeds a specified limit, url-loader can optionally fallback to using file-loader. This optimizes performance by inlining smaller images, fonts, and other assets while efficiently handling larger files. It's a crucial tool for modern webpack setups to improve website loading times and overall user experience.