Short answers, pulled from the story.
Prajna (or panna in Pali) is a Sanskrit term most often translated as "wisdom" or "understanding", though scholars like Damien Keown have argued it is closer to "insight" or "non-discriminating knowledge". In Buddhist texts it specifically denotes the understanding of the true nature of phenomena, including the three characteristics of impermanence, suffering, and non-self.
Buddhist Abhidharma commentaries and the Mahayana Yogacarabhumi-sastra both identify three forms: wisdom from learning or hearing (srutamayi-prajna), wisdom from reflection and reasoning (cintamayi-prajna), and wisdom from meditative cultivation (bhavanamayi-prajna). These are understood as a progressive sequence, each building on the previous.
Prajna is the third and culminating stage of the Threefold Training, following sila (morality) and samadhi (concentration). It represents the insight into reality that a stable, ethically grounded mind can achieve through meditation and analysis.
Prajnaparamita, the Perfection of Wisdom, is the highest form of prajna in Mahayana Buddhism. It is a direct, non-conceptual knowledge of ultimate truth, including emptiness (sunyata), and is both a quality required for bodhisattvas seeking Buddhahood and an entire genre of Buddhist texts, including the Heart Sutra.
According to Paul Williams and Mahayana Prajnaparamita sutras, the highest prajna is ultimately the state of understanding emptiness (sunyata). Mahayana holds that Abhidharma analysis stops at discerning individual dharmas, whereas Mahayana prajna goes further to recognize that all phenomena are themselves empty.
Buddhaghosa, in his fifth-century treatise the Visuddhimagga, defines vipassana-panna as "knowing in a particular mode separate from the modes of perceiving and cognizing". He illustrates this with a money-changer who, unlike a child or a villager, can identify genuine and counterfeit coins and trace their origin, representing a deeper penetrating understanding of phenomena.