Linux is made with one thought in mind: Everything is a file.
A blank piece of paper is called a file in the world of computers. You can use this piece of paper to write a text or make a drawing. Your text or drawing is called information. A computer file is another way of storing your information.
If you make many drawings then you will eventually want to sort them in different piles or make some other system that allows you to easily locate a given drawing. Computers use folders to sort your files in a hierarchic system.
A file is an element of data storage in a file system. Files are usually stored on hard drives, cdroms and other media, but may also be information stored in RAM or links to devices.
To organize our files into a system we use folders (which are also technically files). The lowest possible folder is root / where you will find the user homes located in /home/.
/ <-- root folder
/home/ <-- home folder
/home/mom/ <-- Mom's home folder
/home/dad/ <-- Dad's home folder
Behind every configurable option there is a simple human-readable text file you can hand-edit to suit your needs. These days many programs come with nice GUI (Graphical User Interface) like Yumex that can smoothly guide you through most configuration or installation steps, but many do not and require manual editing. Those who choose to can gain full control of their system by manually adjusting the configuration files from foo=yes to foo=no in an editor.