When bitcoins are lost, they are permanently gone. This is because all Bitcoin transactions are recorded on a public ledger called the blockchain. Once a transaction is recorded, it cannot be reversed or changed. The only way to recover lost bitcoins is if the owner of the bitcoins has a backup of the private key associated with their wallet. If the private key is lost, the bitcoins are effectively gone and cannot be recovered.
Bitcoin is said to be lost if it is irretrievable or otherwise out of circulation. In such an instance, owners cannot spend it anymore. A majority of the time, Bitcoin is lost for good when users lose their private keys and have no means of recovering them. Bitcoins are regulated by private keys, which can be viewed as physical keys that regulate access to funds in a safe. The keys act as signatures that authorize a person to retrieve and spend Bitcoin. Therefore, the lack of a private key renders the money associated with it not usable.
Generally, lost Bitcoins are still on the blockchain like any other Bitcoin, only that they are inaccessible. Since the chain is an unchangeable digital ledger, each transaction is permanently recorded and hence irreversible. So, when the Bitcoins are included on the ledger, and there's no proof of ownership, they do not go anywhere and will just sit there. This means users can only spend their Bitcoins if they recover or regenerate their private keys.
Every time someone loses BTC, the coins are usually taken out of circulation. This, in turn, causes the remaining BTCs to have more value. Bitcoin can be divided infinitely, which implies that those lost do not harm the system but empowers it. Moreover, since Bitcoin gets value from its fixed supply, every lost BTC augments the worth of the others in the network a little more.