Relative velocity is the concept of measuring the speed of one object in relation to another. When traveling at 15 mph at 45° North of East and observing another car going due East at 8 mph, the relative velocity involves vector subtraction of their components. The calculations show that the relative velocity vector is (15√2/2 - 8, 15√2/2), indicating that the observer in the first car sees the second car moving mostly east with a slight northward component. The magnitude of this vector can be calculated using the Pythagorean theorem, but the direction can also be determined using trigonometric functions. Understanding these vector components is crucial for accurately interpreting relative motion.