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The video tutorial from Cohere AI explains the concept of word and sentence embeddings, which are crucial for large language models. Since computers can only process numbers, word embeddings translate words into numerical representations, while sentence embeddings do the same for sentences. This process is not manually done; instead, a neural network analyzes the context in which words and sentences appear. By examining their co-occurrence in similar contexts, the model adjusts the numerical associations, bringing related words and sentences closer together in the embedding space. This method yields impressive results in enabling computers to understand and process language effectively.