How Does the “Base Fee” and “Priority Fee” System Work under EIP-1559?

The base fee is the minimum price per unit of gas required for a transaction to be included in a block, and it is determined algorithmically by network demand. The priority fee is an optional "tip" paid by the user to the validator to incentivize them to prioritize the transaction.

Users set a "max fee" which covers both. If the max fee is higher than the base fee plus the priority fee, the excess is refunded.