If all the numbers below are spinning your head, just think of a painting in digitized form.
With a low resolution, you get the idea of the picture, but it looks rough and grainy. With a higher resolution the picture looks fine and smooth. With an extremely high resolution the digitized print would almost identically resemble the original painting. 16 bit gives you 65,536 ‘pixels’, 24 bit gives you over 16 Million ‘pixels’.
Technically speaking, the resolution of the audio signal in a 16 bit system is 65,536 steps. Each bit gives you 6 dB dynamics. In the ideal world, 16 bit would give your music 96 dB dynamics. In the real world, 1-2 bits = 6-12 dB are noise, and about 18dB = 3 bit have to be left as headroom to merge tracks, add EQ etc. So a normal 16 bit recording is really a 11-12 bit recording = 72 dB dynamics and 4,096 steps resolution.
The resolution of the audio signal in a 24 bit system is 16,777,216 steps. With 6dB dynamics per bit, 24 bit give your audio a theoretical 144 dB dynamics. Subtract the 4 bits for noise and headroom and you have a usable resolution for your music of 20 bit = 120 dB dynamics.
