As a simple explanation, let's say that arithmetic coding is no longer about using the optimal number of bits to code an element, as does Huffman, since this method can't do better than one bit per element. We will now define "ranges", within which each element will take a share (such as 2%, 75%, etc.). This method is extremely precise, since each element will cost exactly its entropy, such as 2.53 bits (precisely, not an approximation to 2 or 3), or 0.17 bits.
For more details on how it works, i invite you to read the Wikipedia entry, which is fairly good.
The method, however, has some drawbacks. To begin with, defining the precise share of each element incurs a header cost. This situation is pretty visible with Range0, which is a block-based range coder. In order to compensate the (relatively) large size of the header, i had to accept block sizes of 128KB, which is much more than the equivalent Huff0 (16KB), resulting in a less precise entropy adaptation.
A way to remove the header cost is to not transmit any header. Then, entropy adaptation is done dynamically, by recalculating shares after each update.
Unfortunately, this method also has its costs. This time, speed is the price to pay. A lot of speed actually. Adjusting a single element requires renormalizing all others, which can be too much of a burden for a 256-element alphabet, such as a Byte.
This is where the Binary Arithmetic Coder can help.
In contrast with previous coders, this one is limited to a 2-elements alphabet, 1 or 0. It's basically a yes/no switch. With this restriction in mind, the Binary Arithmetic Coder comes with a crucial advantage : a trivial update mechanism.
A single value is enough to define the switch. It represents the share of 0, while 1 will take the rest. If 0 is very likely, the share will be high. If we believe that, on next update, the probability of 0 will be even higher, then it's enough to increase the value. Otherwise, decrease the value. That's it.
With such a trivial update mechanism now in place, it's time to concentrate on the update rule. The question asked is "by how much should i increase/decrease the value" ? Simple question, but the answer to it will need quite some developments. And we'll keep that for another blog entry.