diff --git a/README.md b/README.md
index dacd18e..97883cd 100644
--- a/README.md
+++ b/README.md
@@ -8,7 +8,7 @@ All sample components can be found in the `custom_components` directory. The `te
 
 - Create a `custom_components` directory in your esphome configuration directory (the directory where your ```.yaml``` files are)
 
-- Copy the directory of the empty component to `custom_components` in its entirety, so you end up with e.g. `custom_components/empty_sensor/`
+- Copy the directory of an empty component to `custom_components` in its entirety, so you end up with e.g. `custom_components/empty_sensor/`
 
 - Find the configuration entry for the empty component in `test_empty.yaml` and copy it into your own `.yaml` file.
 
@@ -16,3 +16,41 @@ All sample components can be found in the `custom_components` directory. The `te
 
 - No errors? Great! You can now start modifying the empty component into your own custom component.
 
+## Basic structure of a custom component
+
+Let's start with the simplest custom component:
+
+```
+custom_components
+├── empty_component
+│   ├── __init.py__
+│   ├── empty_component.cpp
+│   ├── empty_component.h
+│  ...
+```
+
+The ```__init.py__``` file contains 2 main things: 
+- **configuration validation** or **cv** 
+- **code generation** or **cg**
+
+**cv** handles validation of user input in the `.yaml` configuration file for this particular component: defining the available configuration options, whether they are _required_ or _optional_, any constraints on the types and values of an option, etc.
+
+**cg** takes these validated configuration options and generates the code necessary to streamline them into your c++ code, as well as registering your component properly within the ESPHome runtime.
+
+The ```.cpp``` and ```.h``` files are the main source code files for your component. You're free to add to or modify the structure of the source code within the constraints of `c++`, but your code needs at least one `class` derived from `Component` that will be registered in the `__init__.py`.
+
+If your component yields a specific type of component, e.g. a `sensor` or a `switch`, ESPHome will instead look for a `sensor.py` or `switch.py`.
+The structure of these is identical to that of `__init__.py`. 
+
+See for example:
+
+```
+custom_components
+├── empty_binary_sensor
+│   ├── binary_sensor.py
+│   ├── empty_binary_sensor.cpp
+│   ├── empty_binary_sensor.h
+│  ...
+```
+
+There is no `__init__.py` here, instead we have a `binary_sensor.py`.