Alveoli are one of the smallest structures inside the lung. They are shaped like little sacs and they are the dead end of the lung. When we breathe in, these are the things that inflate.
Lots of small blood vessels called capilliaries line the outside of the alveoli and they release carbon dioxide into the cavity of the alveoli, and absorb oxygen from the inside of the alveoli. This allows our bodies to get fresh oxygen and get rid of carbon dioxide.
You can see an image to help illustrate this here:
The small, hollow balls are alveoli.
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