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The video by Cohere AI explains word and sentence embeddings, which are essential for large language models. These models aim to help computers understand and process language. Since language consists of words and computers process numbers, word embeddings convert words to numerical representations. Sentence embeddings perform a similar function for sentences. This process is not manually done; instead, it involves a neural network that analyzes context. When two words appear together in similar contexts, their numerical representations are adjusted to be closer to each other. This method results in effective and meaningful representations of words and sentences for computational use.