A component is a installable piece of the application or product to be installed. The installer service installs or removes a component as a single coherent piece. All of the contents of a component must be installed to the same directory and under the same conditions; there is no mechanism for installing only part of a component. All the components contained in selected features will be installed to the target system.  

Components contain the data installed by an application and it can be  a single file, a group of related files, INI Data, COM objects, registration, registry keys, shortcuts, resources, environment variables, libraries grouped into a directory, or shared pieces of code such as MFC or DAO.

Two components that share the same component ID are treated as multiple instances of the same component regardless of their actual content. Only a single instance of any component is installed on a user's computer. Several features or applications may therefore share same components and therefore the author of an installation package must follow strict rules when specifying the components of a feature or application.

Quick Tip: Every component should have a key file defined (which could also be a registry value). This is essential because when the Windows Installer triggers for a repair, it can repair the component if the key file is missing.

Interested to learn more about components? Visit MSDN pages to know "how to use components" in an installation package.