We use this categorical data encoding technique when the features are nominal(do not have any order). In one hot encoding, for each level of a categorical feature, we create a new variable. Each category is mapped with a binary variable containing either 0 or 1. Here, 0 represents the absence, and 1 represents the presence of that category.
These newly created binary features are known as Dummy variables. The number of dummy variables depends on the levels present in the categorical variable. This might sound complicated