Imagine you’re at a loud party. If you want to talk to someone on the other side of the room, you have to yell at them, and they still might not hear you at all. It’s not because you aren’t being very loud, but there are lots of other loud sounds around too. Even when you get close to them, they might have trouble understanding you clearly because of all the other noise around. You have to repeat yourself often so it takes longer.
The bars are reporting the signal to noise ratio, or SNR, from the source to the receiver. The higher the SNR, the more data can be successfuly transmitted and received per second, all else being equal. Being close makes the signal stronger, and being farther away makes it weaker, because the signal spreads out with distance. But there is also noise to consider. Noise can be coming from other users on the same service, other services on the same frequency, other devices accidentally leaking RF on that frequency, or even natural sources like solar storms and cosmic rays.
As for why it slows down, when there is interference and a packet doesn’t get through, the devices will keep retrying until the data eventually does get through, but that makes each packet take longer to get through, so everything slows down.
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