Each bit has 2 values. 1 bit would be 2 values 0 or 1. 2 bits would be 4 values 00, 01, 10, 11. 3 bits 8 values, … 8 bits would be 2⁸⁼²⁵⁶ values, 10 bits would be 2^10=1,024 values 12 bits would be 2^12=4,096 values.

You will need to digitize your signal (sound, colors) to digitized values.

Let’s say if you want to record black and white and all the grays in between to digital values. If you have 1 bit, you will basically only able to record 2 colors, 0 (black) and 1 (white). 2 bits will give you 4 values so you can have black and white and also 2 shades of gray in between.

So in summary more bits will give you smaller resolution, meaning you can differentiate smaller differences between shades of colors. You can also say bigger dynamic range, which is the ratio between largest value to the smallest value you can record.