What if I have a bigger number in Python (not going into 8 bytes)?
Python will adapt and always store the correct number, no approximation. Even with very big INTEGER (but this is not true with other types)
How is it stored in the system, literally? Like a few smaller integers?
That's python implementation. You could find it from the source code here : svn.python.org/projects/python/trunk/Objects/longobject.c (thanks @samgak)
Does it hugely slow down the arithmetics on this number?
Yes like in other languages when the number becomes bigger than .e.g 2^32 on 32 bits systems the arithmetic becomes slower. How much is implementation dependent.
What does Python do, when it encounters such number?
Huge integers are stored in a different way and all arithmetic is adapted to fit.
Is there any difference in Python's 2 & 3 behavior except storing as long in Python 2 and appending L to string representation?
Python 2 and 3 should have the same high level behaviour.