According to Judaism, are the deceased aware of what’s going on with the living and can there be any communication between the living and the dead?
Yes, according to Judaism the dead are aware of what happens with the living. It is also possible for there to be interaction and communication between the living and the dead. This can be accomplished in forbidden ways which involve magic, witchcraft and demonology; but there are also ways which are permitted. This connection is particularly found among, but not limited to, people who share a strong spiritual connection such as between family members or between rabbis and their students.
The Talmud (Berachot 18b) addresses your specific question and presents several fascinating incidents that demonstrate the above. One of those incidents is as follows:
The father of the Talmudic scholar Shemuel was very respected by people such that they entrusted money with him in order for him to distribute it to orphans. When his father died, Shemuel was not present in order for his father to pass on the whereabouts of these monies which thereby disappeared. After time, people came to refer to Shemuel as “the son of he who consumed the orphans’ money”.
[Interestingly, this comments on the tainted nature of people. Despite having trusted Shemuel’s father in his lifetime, once he died, rather than judge him favorably (as we’ll see they should have), they accused him of stealing the orphans’ money.]
Shemuel sought his father in what the Talmud refers to as “the courtyard of death”. Rashi explains this to be the cemetery. The Vilna Gaon explains it to be a particular spiritual plane in which departed souls reside and which can be accessed through the dream state. In either case, Shemuel initiated contact with the realm of the dead only through Torah-permitted means.
There, he meets certain lower souls and tells them that he seeks one named “Abba”. The souls reply there are many named Abba. He adds that he seeks one named Abba the son of Abba. They reply that there are many Abba sons of Abba. Only after clarifying that he seeks Abba the son of Abba who is also the father of Shemuel do they inform him that his father is in the “Yeshiva on High” (an elevated spiritual plane commensurate to his elevated Torah learning in this world).
[As an aside, since there were many named Abba the son of Abba and not all could have been sons whose father died between conception and birth, this implies that unlike the Ashkenazi custom not to name children after people still alive, in Talmudic times, not only was it common to name after the living as the Sefardim do, but even to name a child after its living parent.]
In the meantime, Shemuel sees the soul of the great Talmudic sage Levi sitting aside from the other souls. When Shemuel inquires why Levi didn’t go up to the Yeshiva on High, Levi replies that for as long as he had refrained in his lifetime from attending the yeshiva of Rabbi Afas and thus slighted his honor, he would be barred from going up.
When Shemuel’s father arrives and he sees Shemuel, he cries and then he smiles. He explains to his son that he cried because Shemuel would soon die and be joining him, but smiled because Shemuel is greatly honored in what his father refers to as “this world”. Shemuel responds that if so, he requests that Levi should be permitted to go up to the Yeshiva on High. Levi was then immediately elevated in Shemuel’s merit.
Shemuel then asks his father where the orphans’ money is. He tells him it can be found in the floor under the basin of their grinding stone where the upper and lower bags contain the family’s money while the bag in the middle is the orphans’. When Shemuel asks his father why he stored the money in this way, his father says that he did so in order to ensure the safe-keeping of the orphans’ money even by incurring loss to his own. He thus explains: “If a thief comes to steal the money from where it’s buried, he’ll only find the upper bag which is ours, and that of the orphans’ below will be spared. Similarly, if the earth damages the money, it will only damage the lowest bag which is ours, but that of the orphans’ above it will be protected”.
We see from this account, as is the case with many other sources as well, that according to Judaism, the deceased are in fact aware of what goes on with the living and that it is possible for there to be interaction and communication between the living and the dead.