The first step of digitization is to sample the analog signal. Output of this process is a discrete time signal. At this point, there is no constraint on amplitude of the output signal. Figure below shows both the signals.
The next step of the digitization process is quantization. It involves approximating the sampled analog values using a finite set of values. After this step, the output signal is discrete in both time and amplitude. Amplitude of the signal takes 1 of the M possible values.
The third step of digitization is to encode these quantized values into bits. Each amplitude level can be represented as a binary sequence. The output of this process is a digital signal that is a physical signal. It is continuous in time and amplitude of this signal is either 1 or 0.
Digital signal can also refer to a signal that switches between discrete number of voltage levels.
