Binary numbers represent values using strings of binary digits (bits) that are equal to powers of two. Converting between binary, decimal, and hexadecimal involves representing the value as a sum of place values and multiplying/dividing place values by powers of two or sixteen. Arithmetic in binary follows similar rules to decimal, with carries for addition and borrows for subtraction, and multiplication accomplished by successive additions and left shifts. Hexadecimal uses groups of four bits and letters to represent values for convenience.