The layering is just a method to standardize functionality such that a process at any level will know how and who to pass traffic to, and receive traffic from.
It permits coexistence of multiple protocols at most layers, and provides a way of determining which traffic goes to which process (software ports and sockets, for example).
Some layers can have sub-layers. For example, in a T1 connection through a carrier, there are many devices involved in getting the signal from one side of the cloud to the other, but the actual T1 signaling (pulses on copper) is layer one. It doesn't matter what the traffic is on the T1 (voice, channel signaling, HDLC, Frame Relay ...) the devices that move that T1 signal have their own layer-like strategy and protocols, and can be complex, but it's all still layer one (per OSI).
Layer two tends to be the first organization of the raw signaling. Layer two tends to speak in terms of "framing" or frames of traffic (Ethernet Frames, Token Ring Frames, Frame-Relay Frames, HDLC Frames ...). Layer two also gnenrally refers to "local" protocols ... or traffic within a specific basic domain (Ethernet uses Broadcast Domain)
Layer three provides methods for moving the traffic beyond the "local" and permits traffic passing from domain to domain (for IP, network to network, subnet to subnet, or between network and subnet). For example, NETBIOS/NETBEUI (the old LANMAN networking) was a layer two protocol ... there was no place in the frame to put a network address beyond the "local" domain. To overcome this limitation (once networking developed the need to go beyond the local segment), NETBIOS/NETBEUI was adapted (NbT) to use the TCP/IP suite to permit addressing beyond the local segment and out to "the world" using the layer three addressing capability of IP.
Layer four is generally describes as using "segments" of data ... a logical chunkification of the larger stream of data from the higher layers that also describes things like whether the transmission will be "reliable" connection-oriented (like TCP) or "unreliable" (like UDP) ... the difference being that TCP requires acknowledgment from the receiver and allows for re-transmission of missing chunks (that's the "reliable" part) and UDP just sends and forgets ... if traffic is lost there's no way to track it (at this layer, some of the suite applications, like TFTP, track the data chunks at a higher layer).
Layers five, six, and seven all deal with the formatting, presentation, and organization of the data, interact with the operator/user/controlling process/application.
Stuff like crypto, language and character sets, and high level control of the information flow happen at the higher layers.
If you want to really get into the nuts & bolts, check out the TCP/IP books by Doug Comer. Even though it's specific to TCP/IP, he covers the layers conceptually in-depth.
It's certainly one of, if not THE, best book (actually three, possible more by now) covering the topic.
Standard disclaimers apply: Some information may have been bent, folded, spindled, or mutilated to permit brevity and simplification. Protocol sacks and layers can get pretty complicated pretty quick.
Good Luck