The catchError operator in Angular RxJS listens for errors in an Observable stream. When an error occurs, catchError intercepts it and allows you to handle it by returning a new Observable, such as a fallback value. This prevents the error from stopping the stream. In the example, the source Observable throws an error, but catchError catches it and returns an Observable that emits 'Recovered'. This way, the subscriber receives 'Recovered' instead of an error. If catchError does not return a new Observable, the error will propagate and end the stream. This visual trace shows each step: the Observable starts, throws an error, catchError catches it, returns a fallback Observable, which emits 'Recovered', and then the stream completes normally.