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It's a contraction. Yes, I've read the wikipedia definition of portmanteau, and I still think bit isn't a portmanteau.

Obligatory http://xkcd.com/739/

Vaguely disturbing that this is new to anyone on HN. Queue discussion of nibbles and bytes.

The paper is well worth reading if you haven't already done so.

    A Mathematical Theory of Communication
(http://cm.bell-labs.com/cm/ms/what/shannonday/shannon1948.pd...)

Especially page 5, which is a very easy to understand description of EDIT markov chains. But you can use that letter frequency thing to do a really nice easy description of compression.