The biological filter uses different groups of bacteria to break down the ammonia. The first group of bacteria, the ammonia-oxidizing group, converts ammonia to nitrite. Nitrite is very toxic to most fish. A second group of bacteria, the nitrite-oxidizing group, converts this toxic nitrite into a much safer compound, nitrate. Both groups need oxygen in order to do their work. After the bacteria have converted ammonia to nitrite and nitrite to nitrate, a small amount of acid is released. Well-established tanks should have no measurable ammonia or nitrite. Ammonia and nitrite levels should be tested regularly, especially during the establishment of the biological filter.
To learn more, read Your Aquarium's Water Quality