Before EIP-1559, each transaction had a bid: gas limit * gas price (first price auction).
EIP-1559 includes a base fee set by the supply/demand of gas used in a block. Base fee is burnt; priority tip is transferred to miner to incentive inclusion. EIP-1559 makes block size variable.
Gas is priced in gwei. The maximum block size has increased over time and was 12.5M gas, enough for roughly 600 of the simplest transactions.
With EIP1559, each block has a protocol-computed reserve price called base fee. Base fee is a function of preceding blocks only. All revenues are burned. Doubles the max block size to 25M gas with the old max (12.5) serving as target block size. Adjust base fee up or down whenever the latest block is bigger or smaller than the target size.
Transaction now includes a tip and a fee cap. The fee cap is at least the block’s base fee.