What exactly is the Internet of Things (IoT)?
Internet of Things is an environment of smart small hosting devices (because they get attached to any device and make them smart device) which are Always, Anywhere and Anytime (3As of IoT) connected with each other and sending some data or information which can further be processed over cloud to generate meaningful analytic result that can help a lot or to trigger an automatic action according to the analysis. These small devices are called the “THING” of Internet of Things and this environment comprises of 3 ingredients called Device, Network and Application also known as DNA of Internet of Thing.
This particular infographics answers all your questions very well: (credit: postscapes-harbor-iot-infographics.jpg)
Source: Quora, Postscapes, harbor research