You should think of them as having infinitely many 1 bits. In the abstract, the two's complement binary representation has infinitely many 1s; not that more 1s can be added as necessary, but those 1s are already part of how the number is represented.
The fact that those infinitely many bits aren't actually stored in memory is an implementation detail, so when you're thinking about this you should ignore the limitations of memory until you are in a situation when you are the one who has to write the implementation. If you are just seeking to understand this conceptually, you don't need to think about things like fallback bits, and I don't think it necessarily helps to.
A binary number represents a sum of powers of 2, for example:
110012 = 24 + 23 + 0 + 0 + 20
The number -1 is represented by an infinite sequence of 1s, extending infinitely far left:
...11112 = ... + 23 + 22 + 21 + 20
This is nonsense in the usual sense of an infinite series, but there are good reasons to define the result as -1. The most intuitively appealing reason is what happens when you add 1 to it, by following the addition algorithm:
...111111111
+ 1
――――――――――――
= ...000000000 (result)
――――――――――――
...11111111 (carry)
In the rightmost column you have 1 + 1 which is 2, or 102 in binary, so you write a 0 and carry a 1 to the next column left. Then in that column you have a 1 plus the carried 1, so you write 0 and carry another 1... and so on, ad infinitum. The result has a 0 in every position. Therefore, ...111112 must have represented -1 because we followed the algorithm to add 1, and we got a representation of 0.
If that's not satisfying enough, then there are other reasons that ...111112 ought to be interpreted as a representation of -1:
- The infinite sum 1 + 2 + 4 + 8 + ... is a geometric series; the formula for a geometric series with constant ratio r is 1/(1 - r). This formula only applies when -1 < r < 1, but if we plug in r = 2 anyway, then we do get the result -1.
- The infinite sum 1 + 2 + 4 + 8 + ... actually does converge to -1 in the 2-adic norm.
- The result -1 can also be obtained by other definitions including Euler summation, and as noted by Wikipedia any summation method which is both stable and linear associates this sum either with the result ∞ or -1.
I mention these also because they imply that certain properties still hold about arithmetic; applying the usual algorithms for addition, subtraction and multiplication "out to infinity" give sensible results obeying the usual properties of arithmetic like associativity, commutativity and distributivity.