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This lecture explains the principle of conservation of charge in a neuron's compartmental model, illustrating how charges move intracellularly and exit elsewhere. It also delves into the complexities of interpreting extracellular signals, highlighting the impact of synaptic inputs on the extracellular potential and the challenges posed by thousands of independently activated synaptic inputs. The lecture further explores the phenomenon of the extracellular action potential, demonstrating how the amplitude of signals falls with distance from the dipole and is influenced by the strength and separation of current sources. It concludes by discussing factors that enable neurons to effectively separate charges, such as low intracellular resistance and high membrane resistance, emphasizing the intricate relationship between a neuron's morphology, synaptic inputs, and extracellular signals.