A concept is a mental integration of a set of two or more existents, which share the same characteristics. This has the effect of pulling together many existents under one mental unit rather than dealing with many existents individually. While any one existent is composed of many characteristics, concepts abstract away only some of the specific properties of concrete examples. Man creates concepts by understanding relationships of similarity and difference observed between existents; the unit is the Objectivist "bridge between metaphysics and epistemology" (ITOE p. 7). The essential fact which needs to be grasped in creating and acquiring concepts is that every existent has an identity (a nature).
Similarities and differences in an existent's nature, which man perceives, form the basis for assigning the existent to a particular concept. Similarities in terms of commensurable characteristics are the basis for the definition of a concepts, and since concepts stand for two or more concretes, it must be possible to differentiate one concrete from another one which is subsumed under the same concept: see measurement omission.
A concept is just such a classification: a mental "integration" of at least two existents that share a common attribute or set of attributes (perhaps in different measures or degrees), each of which is for this purpose regarded as a unit of the concept. Once a concept is formed, it is given a specific definition and assigned a word; thereafter, it can be treated almost as a perceptual object, containing (or otherwise linking to) a wealth of implicit knowledge that need not be held explicitly in consciousness.
These concepts are formed by means of "measurement omission". Concepts are formed by isolating specific attributes of two or more similar concretes(such as tables, to use Rand's example), and omitting the particular measurements involved. The concept of table, therefore, is formed by isolating the attributes(Rand's "Conceptual Common Denominators") that constitute "table-ness"----ie, support(s) and a flat surface upon which items may be placed----and omitting the specific measurements involved; height, weight, color, number of supports, diameter of surface, etc. Once a concept is formed, it is defined by identifying its "essential" characteristic(s); that is, the characteristic or characteristics on which, within the context in which the concept is being formed, the most other characteristics depend.
The reference to "context" here is crucial. Since every concept is formed in a specific context, every definition is therefore contextual. If concepts are properly formed, then even though additional knowledge may require changes to one's definitions, one's later definitions will not contradict one's earlier ones.
What is the role of reason in this process? Reason consists in forming concepts through the use of logic, what Objectivism defines as "the art of noncontradictory identification".
Objectivism denies that the proposition is the fundamental unit of knowledge, arguing instead that concepts themselves constitute the building blocks of knowledge. So, in their way, do percepts, which consist of the knowledge that something exists. Concepts, however, consist of knowledge of what exists.