A byte is a basic unit of data storage in computing and digital communication, typically consisting of 8 bits. Each bit can be a 0 or a 1, allowing a single byte to represent 256 different values. Bytes are used to encode characters, such as in text files, and are fundamental in measuring the size of data storage, including files, memory, and disk space. Larger units of storage, such as kilobytes, megabytes, and gigabytes, are based on multiples of bytes.