When the password consists of 4 characters, each being 0-9, there are 10,000 possible passwords; 14 bits are required to represent 10,000 possible combinations of anything:
log(10000) / log(2) == 13.28771
With 5 characters, each 0-9, there are 100,000 possible combinations, and that requires 17 bits:
log(100000) / log(2) == 16.60964
Therefore, 12345 offers 3 extra bits of security compared to 1234.