Pulse Code Modulation (PCM) is a method to convert an analog signal into a digital signal. It involves three main steps: 1) sampling the analog signal at regular intervals, 2) quantizing the sampled signal into discrete levels, and 3) encoding the quantized levels into binary digits. The sampling rate must be at least twice the highest frequency of the analog signal according to the Nyquist theorem to avoid aliasing. Quantization divides the signal amplitude range into discrete levels and assigns a unique code to each level. This introduces quantization error but more quantization levels reduce the error. The bit rate of the encoded PCM signal depends on the number of bits per sample and the sampling rate.