A tool is only as good as the material that it's made from. This is particularly true when discussing drill bits, as the material that the bit is made from greatly effects not only its performance, but what sorts of materials it can be used to drill through. Regarding the hardest drill bit though it isn't one material, but a combination of them that claim this title.
The hardness of a drill bit, as the hardness of any material, is a measure of how difficult it is to scratch. This means that the material which makes up the hardest drill bits is very difficult to mar, as it must be harder than the material that it's drilling. Unfortunately, materials that exceed in hardness are also more brittle, meaning that they won't bend, but will snap.
The basis for many of the hardest drill bits is tungsten carbide. A metal that is five times stronger than steel, tungsten carbide by itself makes for a very hard drill that's quite resistant to heat. However, it can be brittle, so only the tips of many bits are made of this metal, though it isn't uncommon for entire drill bits to be made of it.
For an extra layer of hardness to tungsten carbide drill bits, a coating of polycrystalline diamond is often added. This coating consists of diamond particles that are roughly half a millimetre thick and bonded to a tungsten carbide support.
Advantages and Disadvantages
These diamond crusted tungsten carbide bits are the hardest drill bits, but they have their drawbacks as well as their advantages. The advantages are obviously these bits' resistance to wear and their ability to drill through even the hardest of materials. They are also brittle, however, and may snap from applied pressure, and are extremely expensive. As such they tend to only be used for select projects.
These types of drill bits are used in a variety of industries. The automotive industry makes use of them, as well as the aerospace industry. The necessity of drilling through extremely tough and durable alloys makes these bits a necessity.