Serial communication works on 1s and 0s. Also known as binary, the Arduino sends these 1s and 0s (bits) one by one, or Serially. These bits are sent in the form of Highs(1) and Lows(0). These bits form together and turn into bytes. A byte is composed of 8 bits. Here's a little tutorial on binary:
Each bit represents a certain number to add. the first bit (Far right) represents the ones place, similar to the common decimal system.
1 = 1 and 0 = 0.
the next bit's value is multiplied by two, so:
10 = 2, 11 = 3, 00 = 0 and 01 = 1.
100 = 4,
1000 = 8,
10000 = 16,
100000 = 32,
1000000 = 64
10000000 = 128.
Now these bits can form a value up to 255 (11111111).
This value can be turned into ASCII encoded symbols and letters. Here's a list of them.