Normalization is a database design process that aims to reduce data redundancy and improve integrity. Most practical applications focus on achieving the third normal form, which represents a good compromise between structure and performance. While normalization offers benefits like reduced redundancy, improved consistency, and simpler maintenance, it can also lead to performance issues due to complex joins and increased development complexity. The trade-offs involve minimizing storage and anomalies at the potential cost of slower query times and more intricate table structures.