There are two ways to represent information. Information that is continuous, that is, any piece of information that can take on any of an infinite set of values, is said to be analog . While you say, for example, that it is 55 degrees outside, it could really be 55.12492 degrees, or any value between that and 55. Digital information is restricted to a finite set of values.
Computers use a form of digital information called binary information.
If a 0.95 value shows up on your modem line, the computer knows it is probably really a 1, since 0.95 isn't a valid value. It will interpret the 0.95 as a 1, and no data will be lost as a result. Computers make millions of decisions a second, and these decisions are easier to make when the number of values is small. Digital information is often represented only in binary form, but does not have to be. A good example is compact disk audio, where sound information is stored as digital samples.