We review radiative processes responsible for X-ray emission in hard (low) and soft (high) spectral states of black-hole binaries. The main process in the hard state appears to be scattering of blackbody photons from a cold disk by thermal electrons in a hot inner flow, and any contribution from nonthermal synchrotron emission is at most small. In the soft states, blackbody disk emission dominates energetically, and its high-energy tail is due to scattering by hybrid, thermal/nonthermal electrons, probably in active regions above the disk surface. State transitions appear to correspond to a variable inner radius of the cold disk driven by changes of the accretion rate. The existence of two accretion solutions, hot and cold, in a range of the accretion rate leads to hysteresis in low-mass X-ray binaries.