Component analysis is a method used to analyze electrical circuits by breaking them down into their individual components, allowing for a systematic examination of each part's behavior and interactions. This approach is crucial for understanding how components like resistors, capacitors, and inductors affect the overall circuit performance. By employing parameters such as Z (impedance), Y (admittance), h (hybrid), and ABCD (transmission) parameters, component analysis aids in simplifying complex networks for easier calculations and design considerations.