Integrated circuits are formed on small silicon chips and can be categorized based on the number of logic gates as SSI, MSI, LSI, VLSI, or ULSI. The fabrication process involves growing layers on the silicon wafer through steps like epitaxial growth, oxidation, photolithography, diffusion, and metallization to connect components. Photolithography is a key step where a light-sensitive photo-resist is used to selectively expose and remove silicon dioxide, allowing impurities to be introduced to create different circuit components on the chip.