A complex quantity is a mathematical expression that combines a real part and an imaginary part, typically represented as 'a + bi', where 'a' is the real component, 'b' is the imaginary component, and 'i' is the imaginary unit defined as the square root of -1. In the analysis of AC circuits, complex quantities are essential for simplifying calculations involving sinusoidal voltages and currents, as they allow for the representation of both magnitude and phase information in a single entity.