A "bit" is a term originally used in computer terminology, where it stands for "binary device", and refers to the smallest piece of information. It has a value of either 0 or 1. In digital photography, 0 is assigned to black and 1 to white.
In binary language (base-2), "10" is equal to 2 in base-10, and "101" is equal to 5 in base-10. (For more information on converting base-2 numbers to base-10, visit the unitconversion.org Web site.)
Users of digital editing programs, such as Adobe Photoshop, will be familiar with different value bit images. One of the most common is an 8-bit image, which has 256 available tones, ranging from "00000000" (value number 0) to "11111111" (value number 255).
JPEG images are often referred to as 24-bit images, as they can store up to 8 bits of data in each of their three color channels.
DSLRs use most of the tones on the brightest stops, which leaves very few tones for the darkest stops (where the human eye is at its most sensitive). Even a 16-bit image, for instance, will only have 16 tones to describe the darkest stop in the photo. The brightest stop, in comparison, will have 32,768 tones!