What does the number of bits in an encryption algorithm means?

We hear 128 bits, 256 bits encryption.
What does the number represents?

Isn't the number of possible combinations static since there is only 256 characters? Or is it that some encryption map 1 byte into more than 1 byte?

Advanced thanks for any reply.

Every encryption algorithm uses a key for encryption. It is the length of the key that is mentioned in numbers. More the length of the key, the more it becomes difficult to break or hack the encrypted message.

Try referring to www.ciol.com for more information.

Sanjeev