The ESP8266 flash layout defines a series of blocks of memory for each “partition”. There is a block for the user code (the “sketch”), there is a block for the OTA update file, another one for the emulated EEPROM, another for the WIFI configuration and one for the File System.
This last one uses Peter Andersson’s SPIFFS (SPI Flash File System) code to store files in a similar fashion our computers do, but taking into account the special requirements of an embedded system and a flash memory chip.
This is great because we can store a whole static website there (html, css, js, images,…) and use the official WebServer library that comes with the Arduino Core for ESP8266 project to serve files and execute server side code that updates our static site via AJAX or WebSockets, for instance.
But the ESP8266 is nothing more than a (powerful) microcontroller and the WebServer library has its limitations and if you start to work on a complex website, with multiple files (stylesheets, scripts,…) it will soon fail…