How does bitcoin work? - pretend I am 5 years old

I am a young guy but I never went out of my way to learn about how this works. I am hoping some of you can help me understand how all of this works. So far, I hold about $500 of BTC on Coinbase. I heard holding BTC on an exchange isn't safe and I should consider "self-custody." But none of this makes any sense to me. Is it like storing the Bitcoin on a hard drive with some kind of code?

From a course I took in my master’s degree, I learned that Bitcoin is like a reward for people who solved a math puzzle on SHA-256 or something and created a new block. So this part I understand. What I don't understand is how Bitcoin exists. Is it like some kind of file stored in a drive? How and why is it secure? (I understand that there is some sort of code or password that can give access to the drive, but how does this coin get from the blockchain to a hard drive and vice versa—like if I want to get this coin out of the drive and cash it for some USD.)

I also don't know how BTC can be traded on the exchange. Is it because cryptocurrency was adopted by institutions and then they became market makers, or is it just retail investors trading?

I tried watching videos but it’s just information overflow.