Image File Layout
An Image File is a single file (or set of files) that contains the complete disc or disk. The media is read from start (sector 0) to end, block per block, and stored in the image file.
If you want to understand the CD / DVD layout better, read this : CD / DVD Layout.
There are a lot of image file flavours out there.
The most simple ones are the *.iso, *.bin and *.img files which are really block per block files. The differences here are the block-size and the amount of leading blocks (sort of header).
The more difficult ones are those developed by the different application vendors and manufacturers (*.cif, *.nrg, ...).
Besides the block per block content, some (not all) also contain information about the track / session and partition layout and other details about the media or device.
More on converting from one type image file format to another format.