Dijkstra's algorithm is used to find the shortest paths from a starting node "u" to all other nodes in a network. The algorithm works by iteratively updating the cost of the shortest path from "u" to each node and tracking the full path. It fills out a table with the current shortest distance "D(n)" and path "p(n)" for each node "n". The shortest path from "u" to node "x" has a cost of 10 and passes through nodes "u", "v", and "x". The forwarding table on node "u" shows the next hop for the shortest path to each destination node.