Bits are the basic units of information in computing, representing values of 0 or 1. Bytes consist of 8 bits bundled together, allowing 256 possible values. Computer components like memory and storage are measured using multiples of bytes like kilobytes and megabytes. Binary numbers use bits like decimal numbers use digits, with each place value representing increasing powers of two rather than ten. Bytes are commonly used to represent text characters through encoding schemes like ASCII.