Databases store large amounts of data permanently on disk. Only a small portion of data is loaded into memory at a time for processing. Data is stored on disk in files containing records of related data values. Records can have fixed or variable lengths. Files are organized using different methods like heap, sequential, indexed, and hashed to allow for efficient data retrieval, storage, and access. Indexed files use a separate index file to locate records in the data file faster. Hashed files determine record locations using a hashing algorithm and hash function to map records to disk blocks.