From Hillis: "Except for the miracle of reduction, there is no special reason to build computers with silicon technology. Building a computer out of any technology requires a large supply of only two kinds of elements: switches and connectors."
In this circuit, water pressure is used to distinguish between the two possible signals. Notice that in a hydraulic valve the control pipe can affect the output pipe but the output pipe cannot affect the control pipe. This restriction establishes a forward flow of information through the switch; in a sense, it establishes a direction in time. Also, since the valve is either open or closed, it serves an additional function of amplification, which allows the strength of the signal to be restored to its maximum value at every stage. Even if the input is a little low on pressure - because it goes through a long, thin, pipe, say, or because of a leak - the output will always be at full pressure thanks to the on/off operation of the valve. This is the fundamental difference between digital and analog: A digital valve is either on or off; an analog valve, like your kitchen faucet, can be anything in between. In the hydraulic computer, all that is required of the input signal is that it be strong enough to move the valve. In this case, the difference that makes a difference is the difference in water pressure sufficient to switch the valve on. And since a weakened signal entering an input will still produce a full-strength output, we can connect thousands of layers of logic, the output of one layer controlling the next, without worrying about a gradual decrease in pressure. The output of each gate will always be at full pressure.
Funny image:
Since the modern microchip has several million transistors, its hydraulic equivalent would require several million valves. A transistor in a chip is about a millionth of a meter across; a hydraulic valve is about 10 centimeters on a side. If the pipes scale proportionally, then the hydraulic computer would cover about a square kilometer with pipes and valves. From an airplane, it would look roughly the same as the electronic chip does under a microscope.