'API integration' in modern software applications refers to the process of connecting different software systems or components using application programming interfaces (APIs). This allows disparate applications to communicate and share data seamlessly, enhancing functionality and user experience. API integration enables developers to incorporate third-party services, tools, or features into their applications, such as payment processing, social media sharing, and data analytics. By facilitating interoperability among different software systems, API integration streamlines workflows and can significantly increase an application's overall capabilities and performance.