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This is the de facto standard geeks use to communicate permissions. The benefit of this approach is that you only need four characters to fully define them and they're easier to read (to the trained eye, at least).
Permissions are in fact a bit field. Each permission is a bit which can be turned on or off. If you put bits together they form bytes (by grouping eight bits together). Many bytes one next to the other form a computer-readable representation of a whole number (an integer). If you write this down in base 8, you've got the octal representation. If you didn't understand this, it's OK. We'll explain it the easy way.
The octal notation consists of four numbers. In the context of web site management you can consider the first to be always zero and sometimes omitted. The next three numbers describe each one the permissions. The second number describes owning user permissions. The third number describes owning group's permissions. The fourth number describes the permissions for the rest of the world. Each number is 0 to 7. The meaning of each number is simple:
Execute/browse access only
Write access only
Write and execute/browse access
Read access only
Read and execute/browse access
Read and write access
It is almost apparent that "1" stands for execute only, "2" stands for write only and "4" stands for read only. Adding these values together gives you the rest of the combinations. You can't add together the same value (1+1 is forbidden as it is meaningless), so each of the composite values can be broken down to its components very easily. You don't even have to memorise the whole table!
A permission of 0777 means that the owning user, owning group and the rest of the world can read, write and execute the file (full permissions for everyone). A 0764 permission means that the owning user has full access, the owning group has read and write access and the rest of the world have read only access.