How does a priority encoder work and what are its applications?

A priority encoder produces a binary output representing the position of the highest-priority active input. If multiple inputs are active, only the highest-priority one is encoded. For 8-to-3 priority encoder: if input 7 is high, output is 111 regardless of other inputs. Typically includes a valid output indicating at least one input is active. Applications include: interrupt priority handling (encoding highest-priority interrupt request), keyboard encoding, and resource arbitration in buses and systems.