A user story in software development is a concise, informal description of a feature from the perspective of an end-user. It typically follows a simple format: "As a [type of user], I want [goal] so that [reason]." This format helps teams understand user needs and prioritize development efforts. User stories foster collaboration between stakeholders and developers by emphasizing the functional aspects of the software, ensuring that product increments deliver actual value to users while facilitating iterative and incremental development processes.