Inner classes in Java allow you to define a class within another class, creating a nested structure. This is useful when a class is specifically designed to serve a particular purpose within a parent class. For example, if you have a class 'A' with variables and methods, you can create a dependent class 'B' inside it. Class 'B' will only be used within the context of class 'A,' making it a dedicated helper. This structure helps to organize code, improve encapsulation, and prevent unnecessary external access to the inner class.