Docker containers are isolated environments created from a filesystem template called an image. Images store data as a stack of multiple layers, which improves efficiency by allowing layers to be cached and shared between different images. Each layer is essentially a diff of the changes between the current filesystem state and the previous layer. An image is a collection of one or more layers that together define a container's initial filesystem content. Docker supports several unionization systems, including overlay2, which is the default. The ability to reuse layers significantly reduces storage and bandwidth requirements, making builds faster and more efficient. By understanding how Docker images work, developers can optimize their images for better performance and smaller sizes. Best practices include ordering instructions by volatility, minimizing layers, using multi-stage builds, leveraging .dockerignore, cleaning up in the same layer, and using official or minimal base images.