Istio manages east-west traffic (between programs in your cluster) vs north-south traffic (in and out of your cluster). Kubernetes only provides basic service discovery with "service.namespace.cluster" DNS entries to communicate between apps in the cluster. The standard routing is just ip tables configured on each node. It works well but may be limiting for complex deployments.

What Istio does is replace all that with several components. The foundation is the Envoy proxy which runs as a sidecar to all of your pods and handles all the network traffic, providing much better performance, more load-balancing algorithms, advanced routing, retries, rate limiting, observability and tracing (at protocol level), grpc/http2 in both directions, TLS management, traffic shadowing, and custom filters that you can use to do whatever you want with the traffic.

There are also several "control plane" components which actually do the wiring and config management and work in the background. There are several alternatives in this space like Linkerd, Consul Connect, Kong, and even Nginx and Haproxy getting into it. Some are focused only on Kubernetes while others let you communicate across clusters and standalone VMs.