Files are clumps of computer data stored somewhere in your computer. Each file has a name, a location, and a length, and usually a date of when it was last changed. Any files that are in the memory of the computer are lost when the power is turned off. That is not as scary as it sounds because what you usually have in memory is only a temporary copy of the file, the original stays on the hard drive or floppy or wherever it is usually kept. Pretty well the only time the original is in memory is when you are creating a new file and haven't saved it yet.
Files hold and store information that can be read by the computer.
That's all they do. However, they can hold lots of different kinds of information, so we often think of this as different kinds of files. Actually it is just the type of information that is different. Here are some of the main types of files you will encounter. They often have certain letters at the end of their names so you can tell from their names what sort of information is inside.