Understanding Binary Data Type

Hello everyone! I wanted to ask the list a question about the 'bytea'
data type & how I can picture this in my head. I've been reading SQL
for about a few months now and since then, I've only been working with
textual data. Basically I'm familiar with storing text and numerical
characters into tables but my friend told me that databases can hold
much more than just ASCI text. In so I've read up on some pages that
describe the bytea data type:

http://en.wikipedia.org/wiki/Binary_large_object

http://www.postgresql.org/docs/9.1/static/datatype-binary.html

So my question is can and in fact does PostgreSQL and most other RDBMS
have the ability to store large binary files like photos, music, etc
etc into an actual table? I'm guessing the data is dumped into the
table but rather linked or parsed through the file system store path
into the database itself, right? I would just like to know in a basic
round about way how databases store and handle large files like .jpg
or .png files & regardless how relative this term is, how common is it
to use these files or 'bytea' data in tables?

Thanks for any info!