IAM Policy in AWS is an authorization mechanism that defines the permissions for accessing resources. It determines who (users, groups, or roles) can perform what (actions) on which resources. IAM policies use JSON to define access controls and can be used to grant permission across a range of AWS services and operations. Policies are also used to manage credentials such as access keys and temporary security tokens, as well as manage multi-factor authentication settings. Additionally, IAM policies provide audit logging capabilities which enable organizations to detect and mitigate policy violations quickly.