Bits
Computers happen to operate using the base-2 number system, also known as the binary number system (just like the base-10 number system is known as the decimal number system). The reason computers use the base-2 system is because it makes it a lot easier to implement them with current electronic technology. You could wire up and build computers that operate in base-10, but they would be fiendishly expensive right now. On the other hand, base-2 computers are relatively cheap.

So computers use binary numbers, and therefore use binary digits in place of decimal digits. The word bit is a shortening of the words "Binary digIT." Whereas decimal digits have 10 possible values ranging from 0 to 9, bits have only two possible values: 0 and 1. Therefore, a binary number is composed of only 0s and 1s, like this: 1011. How do you figure out what the value of the binary number 1011 is? You do it in the same way we did it above for 6357, but you use a base of 2 instead of a base of 10. So:

(1 * 2^3) + (0 * 2^2) + (1 * 2^1) + (1 * 2^0) = 8 + 0 + 2 + 1 = 11

You can see that in binary numbers, each bit holds the value of increasing powers of 2. That makes counting in binary pretty easy. Starting at zero and going through 20, counting in decimal and binary looks like this:

 0 =     0
 1 =     1
 2 =    10
 3 =    11
 4 =   100
 5 =   101
 6 =   110
 7 =   111
 8 =  1000
 9 =  1001
10 =  1010
11 =  1011
12 =  1100
13 =  1101
14 =  1110
15 =  1111
16 = 10000
17 = 10001
18 = 10010
19 = 10011
20 = 10100

When you look at this sequence, 0 and 1 are the same for decimal and binary number systems. At the number 2, you see carrying first take place in the binary system. If a bit is 1, and you add 1 to it, the bit becomes 0 and the next bit becomes 1. In the transition from 15 to 16 this effect roles over through 4 bits, turning 1111 into 10000.