To manage large datasets efficiently, Power BI developers use strategies such as data aggregation, incremental data refresh, and partitioning. They optimize the data model by only loading essential columns and rows into Power BI. Techniques like query folding push computations back to the data source, reducing the load on Power BI. Developers also use DirectQuery mode for real-time data connectivity, which avoids importing massive datasets. By optimizing the Power Query Editor steps and setting up incremental refresh, developers handle large datasets without compromising performance, ensuring dashboards remain responsive.