What happens when you throw an exception in Java? Explain the different types of exceptions in detail and how they relate to error handling in Java applications. Discuss the best practices for using try-catch blocks and create custom exceptions.

When an exception is thrown in Java, it creates an object representing the error, which then gets passed up the call stack to the nearest exception handler. Exceptions can be broadly categorized into checked and unchecked exceptions, which determine how they are managed during compilation. Best practices include specific exception handling, clean resource management using `try-with-resources`, and logging errors correctly. Custom exceptions allow for more descriptive error handling relevant to your application needs.