Web service is code that responds to a request and provides a reply over HTTP protocol. It doesn't need to work over the web, despite its name. You can run a web service locally on a server or on a local network. You can even run a web service from command line. In fact, that's an easy way to test them.

The input comes from an HTTP request - this means via URL parameters plus (optional) request body.

The parameters could be in URL's path (such as "/a=b/c=d/...") or in its query string (such as "?a=b&c=d...") or both - this data is typically limited in size to 2KB. Additional parameters could be appended to the request body - this is for instance how files are uploaded in an HTML form.

Request body itself can be any data of any size really - web services typically have an adjustable size limit for this data just to avoid mistakenly (or maliciously) huge ones. A request body could contain for example a JSON document, or some other kind of data.

The output of web service can be HTML code, JSON, XML, an image such as JPG or just about anything really. It's up to the caller of web service to interpret it. One such caller is web browser, another one could be API from an application etc.

What's the difference between a web application and a web service? Well, technically a web application should be a collection of web services, which are typically more basic service providers. That's why web services are often used as endpoints for remote APIs. They generally have a well defined input and output and are not too big. They serve a specialized purpose most of the time.