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An author-publisher agreement is a legally binding contract between an author and a publisher. The author, as the first party, grants the publisher, the second party, the exclusive rights to publish their work in exchange for royalties based on book sales. Typically, royalties are fixed at around 7.5% to 8% of the cover price for paperback and hardcover editions. However, seasoned or bestselling authors may negotiate higher percentages. The video discusses the nuances of royalties and highlights the issue of publishers often misleading authors with incomplete or false information regarding royalty payments. This can lead to authors receiving royalties only after certain conditions are met.