In Java, reference types are variables that store references (or addresses) to objects rather than the actual object data itself. Unlike primitive types such as int, double, or char, which directly contain their values, reference types point to locations in memory where the real objects are stored. Common examples of reference types include arrays, classes, interfaces, and the String type.

When you declare a reference variable, you are setting up a variable that can point to an object, but it does not automatically create the object itself. For example, declaring String name; creates a variable called name that can refer to a String object, but does not assign it any value or object yet.

Memory allocation for reference types works differently from primitive types. Primitive values are stored directly in the stack memory, which is fast and efficient. Reference types, on the other hand, store their references on the stack, but the actual object data is stored on the heap, a larger but slower area of memory designed for dynamic allocation.

A special value, null, is used in Java to indicate that a reference variable does not currently point to any object. If you declare a reference variable but do not assign it an object, its value is null by default. Attempting to use a reference variable that holds null (such as calling a method on it) will result in a NullPointerException.