The inference engine applies logical rules to facts in the knowledge base to infer new information. It uses two approaches:
- Forward chaining starts with known facts and fires rules until reaching the goal, applying rules in a bottom-up manner.
- Backward chaining starts with the goal and works backwards through rules to find supporting facts, taking a top-down approach.
Both are illustrated using examples of determining an animal's color. Forward chaining applies rules to known facts about an animal to conclude its color, while backward chaining starts with the color goal and applies rules in reverse to find facts proving the goal.