The theory of plate tectonics explains that Earth's outer layer is divided into rigid plates that move over the more fluid asthenosphere, causing geological phenomena like earthquakes and mountain formation. These tectonic plates interact at various boundaries: convergent (plates collide), divergent (plates separate), and transform (plates slide past each other), resulting in distinctive geological features. Notable effects of these processes include the creation of mountain ranges, oceanic trenches, and volcanic activity, particularly along the 'Ring of Fire.'