Computers are special because they are capable of dealing with huge amount of data simultaneously and they can be reconfigured to do new-different tasks. However, despite their processing ability they are thoughtless that computers rely on the principle of determinism (which is the principle that same input results the same output every time). Due to determinism, computers are reliable.As in the case of numbers and letters, information is stored in a specific form that is not consisted of parts of the information itself but actually signs-symbols that refer to the information itself. Information is different than knowledge and can be described as the intermediary between two thing that's function is to represent these things. As in the example of the word "horse" and the real horse, the word is not the real entity itself but a representation. The letters (h-o-r-s-e) and the word "horse" created by the letters do not resemble like the horse; however as long as the person who writes "horse" and the person who reads it understand the same thing (the concept of a horse) the system works.
In a similar vein numbers represent the amount of something. 10 means 10 of something (tenness) and there are various ways of representing tenness (eg. In Latin words: "ten", In decimal Arabic numbers: 10, in roman numbers: X). Although the counting system we use in our daily lives is decimal (relies on a ten basis); it could be a 2-3-4- or whatever number basis too. In the basis-2 system (binary system), there are two numbers: 0 and 1. To represent ten, we say 110 (0 one, 1 two and 1 eight). Basically, it is possible to count in the binary system and represent all the amounts that we can represent with the decimal system.
Since computers are built on electrical switches that have two forms (open and close - electricity goes and is blocked) it is possible to use the switches to represent binary numbers (1 and 0 - open 1, closed 0). After having this, it is possible to represent all the amounts with switches.
A bit is the "binary digit" and can be 1 or 0. A byte is a sequence of bits (usually 8 but can be 16, 32 or 64 too). An 8 bit byte can represent 128 (2 over 8) values (1, 2, 3,.., 128). We can use these bytes to represent letters. Since 8 bit bytes allow representing 128 signs, there are 128 letters and symbols in the ASCII 'text' format (which is the universal format for texts - but additions have been made by the support of 'Unicode' which allows representing various symbols that are not in the Latin alphabet.
By using the binary code, what a computer can do is not limited do represent text and numbers but image, audio and graphics can also be represented (as we all know). The basics are the same but the quantity of the bytes required for representing these formats is more (since they are more complex - for instance to visualize an image on the screen, each pixels position and color has to specified). Such long sequels of bytes are 'files' and every file has a specific format. Many formats are open (especially the ones that are used to transfer information on the Internet thanks to the World Wide Web Consortium established mainly by Sir Tim Berners-Lee) and some are proprietary.
Every format requires a particular program to be interpreted and the extension of the files makes it possible for the processor to recognize which program should be used for this particular file (however it is every easy to trick the processor by changing the extension name:). Files are contained in folders and this hierarchy brings that there cannot be two folders with the same exact name in a folder (but they can exist in different folders). Note: files are used to represent a piece of homogeneous information. There are also documents which are created by using different forms of files so that documents are used to represent piece of heterogeneous information.
