Most postcodes are small geographical areas in the UK (some are non-geographical). There are around 1,700,000 individual postcodes, which are used primarily by the Royal Mail for sorting mail for delivery to approx 23 million addresses. There are many secondary uses of postcodes, as they can be used to determine the demographics of the people who live there along with statistics for health, crime, social group and economic standing. Insurance companies used them for setting policy prices.
How a postcode is composed
Postcodes are alphanumeric and are between 5 and 8 characters in length. They are made up of 2 main parts, separated by a space. The first part is known as the 'Outward code' (or Outcode) and the second part is known as the 'Inward code' (Incode).
The example given above shows the varying levels of granularity such as Postal Area, District and Sector. 'Postcode Units' refer to an entire Postcode.