It's simple, really.

7 rwx read, write, execute
6 rw- read, write
5 r-x read, execute
4 r-- read
3 -wx write, execute
2 -w- write
1 --x execute
0 --- no permissions

 

Here are a few examples :

chmod 777 (rwxrwxrwx)
chmod 775 (rwxrwxr-x)
chmod 666 (rw-rw-rw-)

 

Further Reading

http://en.wikipedia.org/wiki/Octal
http://en.wikipedia.org/wiki/Chmod

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