Here's a breakdown:

* Alveoli: Tiny air sacs in the lungs that are surrounded by capillaries (tiny blood vessels).

* Gas Exchange: Oxygen from the inhaled air diffuses across the thin walls of the alveoli and into the capillaries, where it binds to red blood cells and is transported throughout the body. At the same time, carbon dioxide, a waste product of cellular respiration, diffuses from the blood in the capillaries into the alveoli and is exhaled.

This process is driven by differences in the partial pressures of oxygen and carbon dioxide between the air in the alveoli and the blood in the capillaries.