Definition
The ‘bits’ field is a 4-byte compact representation of the 256-bit target value. The first byte indicates the number of bytes in the target, and the remaining three bytes are the most significant digits. This compact format allows the 32-byte target to fit in just 4 bytes of the block header.
For example, bits value 0x170c3141 encodes a target with the leading non-zero bytes 0c3141 shifted to start at byte position 0x17 (23). The actual target is a very large number, but still far smaller than the maximum possible 256-bit value.
In Simple Terms
A compact encoding of the mining difficulty target stored in each block header.
A compact 4-byte encoding of the difficulty target stored in the block header. Represents the threshold that a valid block hash must be below.