BIT DEPTH
Bit depth quantifies how many unique colors are available in an image’s color palette in terms of the number of 0′s and 1′s, or “bits,” which are used to specify each color. This does not mean that the image necessarily uses all of these colors, but that it can instead specify colors with that level of precision. For a grayscale image, the bit depth quantifies how many unique shades are available. Images with higher bit depths can encode more shades or colors since there are more combinations of 0′s and 1′s available.
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Dynamic Range and bit depth
Bit depth and dynamic range are indeed separate concepts and there is no direct one to one relationship between them.
The bit depth of a capturing or displaying device gives you an indication of its dynamic range capacity, i.e. the highest dynamic range that the device would be capable of reproducing if all other constraints are eliminated. For instance, a bit-depth of 12 for a CCD tells you that the maximum dynamic range of the sensor is 4096:1, but the captured dynamic range is likely to be much less once noise is taken into account (most 12-bit sensors have on average a dynamic range around 1,000:1 only).
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