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The video tutorial from Cohere AI explains the concepts of word and sentence embeddings, essential components of large language models. These embeddings enable computers to process language by converting words and sentences into numerical representations, facilitating better understanding. Instead of humans manually associating words with numbers, a neural network analyzes context to bring words that appear together closer in the numerical space. This process enhances the model's ability to understand language, resulting in impressive outcomes in language processing tasks. The tutorial emphasizes the significance of context in developing effective embeddings.