Now, each of these bronchies subdivides into smaller structures called bronchioles. And these bronchioles eventually terminate in a specialized sac structure known as our alveoli. So if we zoom in on the smallest bronchio that terminates inside the lungs, we basically get the following diagram. So this is a sac like structure that contains these tiny sacs known as alveoli. And these alveoli are specialized structures where gas exchange actually takes place. So the blood is oxygenated and it basically deposits our waste product, the carbon dioxide, back into the bronchioles.