Even after sampling the signal is still in the analog domain: the amplitude of each sample can vary infinitely between analog voltage limits. The decisive step to the digital domain is now taken by quantization (see Figure 3.1), i.e., replacing the infinite number of voltages by a finite number of corresponding values.

In a practical system the analog signal range is divided into a number of regions (in our example, 16), and the samples of the signal are assigned a certain value (say, –8 to +7) according to the region in which they fall. The values are denoted by digital (binary) numbers. In Figure 3.1, the 16 values are denoted by a 4-bit binary number, as 24 = 16.