Electrons form notional shells around the nucleus. These are naturally in a ground state but can be excited by the absorption of energy from light (photons), magnetic fields, or interaction with a colliding particle (typically other electrons).
Electrons that populate a shell are said to be in a bound state.  The energy necessary to remove an electron from its shell (taking it to infinity) is called the binding energy.  Any quantity of energy absorbed by the electron in excess of this amount is converted to kinetic energy according to the conservation of energy.  The atom is said to have undergone the process of ionization.
In the event that the electron absorbs a quantity of energy less than the binding energy, it may transition to an excited state or to a virtual state. After a statistically sufficient quantity of time, an electron in an excited state will undergo a transition to a lower state via spontaneous emission. The change in energy between the two energy levels must be accounted for (conservation of energy). In a neutral atom, the system will emit a photon of the difference in energy.  However, if the lower state is in an inner shell, a phenomenon known as the Auger effect may take place where the energy is transferred to another bound electrons causing it to go into the continuum. This allows one to multiply ionize an atom with a single photon.
There are strict selection rules as to the electronic configurations that can be reached by excitation by light—however there are no such rules for excitation by collision processes.