Binary code represents all data and instructions inside a computer using only the digits 0 and 1. It works by using place values that double in value at each place, from right to left, similar to our decimal system which uses place values that are 10 times greater at each place. Bytes, which are made up of 8 bits, can represent a single character by assigning a unique 8-bit binary number to each letter, number, and symbol. Understanding binary code is essential for learning computer programming and how computers work at a fundamental level.