To give an example regarding devices packing status into words:
When communicating over protocols, such as DeviceNet, a VFD might broadcast it's status on a word. Each individual bit (or groups of bits) would be indicative of some status of the VFD (fault, LCP status, Hand/Off/Auto, etc...).
From there you can buffer each bit in the word to an appropriate tag so you can deal with it individually.
As to what bits do what on the word, that info is usually supplied by the manufacturer of the device.
Conversely, commands to the VFD may be conveyed in word format. So you would toggle a certain bit in a command word to the VFD to turn it off, reset a fault, etc...