The network layer, which is the third layer in the OSI model, is responsible for the transfer of data packets from the source host to the destination host across different networks. It provides end-to-end communication between hosts by establishing logical connections and routing packets through intermediate networks.

The network layer deals with packets, not bits or frames. Let's understand why packets are the correct answer:

1. **Bits**: The network layer operates at a higher level of abstraction and does not directly deal with individual bits. Bits are the smallest unit of data and are typically handled at the physical layer.

2. **Frames**: Frames are the units of data at the data link layer, which is the layer responsible for transmitting data over a physical link. The network layer is above the data link layer and does not directly interact with frames.

3. **Packets**: The network layer encapsulates data received from the transport layer into packets. A packet is a unit of data that consists of a header (containing source and destination addresses) and a payload (the actual data being transmitted). These packets are then transmitted over the network and routed to the appropriate destination.

The network layer's main tasks include:

- **Logical addressing**: Assigning an IP address to each device on the network to uniquely identify them.

- **Routing**: Determining the most efficient path for packets to reach their destination by using routing protocols and algorithms.

- **Fragmentation and reassembly**: Breaking down large packets into smaller ones (if necessary) to accommodate the maximum transmission unit (MTU) of the network, and reassembling them at the destination.

- **Error handling**: Detecting and correcting errors in packets using error detection and correction techniques.

- **TTL (Time to Live)**: Implementing a mechanism to prevent packets from circulating indefinitely by assigning a TTL value to each packet, which decrements at each hop. If the TTL reaches zero, the packet is discarded.

In summary, the network layer deals with packets, which are units of data that contain a header and payload. It is responsible for logical addressing, routing, fragmentation, error handling, and other functions related to the transmission of packets across different networks.