Payment channels enable two participants to create a private, off-chain channel where they can conduct transactions. Once the channel is established, participants can transact with each other directly without involving the main blockchain for each transaction. This is particularly useful in scenarios that require frequent interactions, as it reduces the load on the blockchain while also minimizing transaction fees. After a series of transactions, the final balance is settled back on the blockchain by closing the channel, recording only the net result of the transactions made within the channel.