A channel is a private blockchain overlay which allows for data isolation and confidentiality. Using state channels, users transact with each other directly outside the Blockchain network as they go off the chain.

They help in increasing the throughput of Public blockchains as they reduce the load for nodes while processing and storing transactions. They are also expected to reduce the cost of using Ethereum network as users pay transaction fees (also known as gas) only while opening and closing channels and not for the entire transaction.