Source
Brent Royal-Gordon, codesmith
Answered Dec 26, 2015 · Author has 1.9k answers and 7.9m answer views
In brief, AirDrop uses Bluetooth Low Energy to establish a low-power, low-bandwidth network with nearby devices. Each device on this network uses its Bonjour—that is, multicast DNS—daemon (mDNSResponder or, briefly, discoveryd) to advertise its presence.
AirDrop can theoretically work entirely via Bluetooth, but in practice, this would be very slow. So it usually creates a much faster peer-to-peer Wi-Fi Direct link between the two devices to transmit the actual file. All recent Apple Wi-Fi chipsets can quickly switch between two networks; AirDrop uses this to make sure that transmitting a file doesn't disrupt your connection to the Internet.
Because it uses all of these different things, AirDrop doesn't work when Bluetooth is off, when Wi-Fi is off, or when your Wi-Fi chipset is too old to support the fast switching feature.