A five-stage model from Brad Frost. Atoms are the smallest indivisible pieces — a label, an input, a button. Molecules are a few atoms combined into one functional unit (label + input + button = a search form). Organisms are molecules and atoms combined into a standalone section of a screen (a header, a product-card grid). Above those sit templates (layout skeletons with no real content) and pages (the final screen filled with real content).
It overlaps with a design system's component hierarchy but isn't the same thing. A design system is the inventory of what to build; atomic design is more a mental model for how to tier and name that inventory. Plenty of teams never adopt the literal atom/molecule/organism vocabulary.
The key point is that atom → molecule → organism isn't a linear process you walk in order. In practice, teams often sketch the organism first and work backward to figure out which atoms it needs.
When to use
Reach for the vocabulary when naming and tiering a component inventory, especially early in designing a system, to debate how small a component should be to stay reusable.