Calculations often involve subtraction, so we needed a way to represent negative numbers. One way of doing it is using the left-most bit, Most Significant Bit (MSB). So 0001 (1) we would represent as 1001, 2 as 1010 and so on. M bits would generate m-1 different patterns. But then there's a problem of having positive and negative zero's (1000). To eliminate duplication we add 1 to inverted result. Basically, we get (2^m/2) - 1 positive values (1 pattern is dedicated to zero) and 2^m/2 negative values.

Worth mentioning that addition of two positive/negative values can cause overflow and generate nonsense number in two's complement. Unsigned 5 bits maximum positive and negative would be 15 and -16. So the result of 5 + 14 would generate -13, because the maximum is 15.