The auditory system begins with the transduction of sounds into electrical activity at the inner ear. However, this is just the first step - the central auditory system processes these sounds, creates perceptual objects, and assign meaning to them. In fact, the introspective sense of what sounds are is generated in the central auditory system and is very far from the peripheral representation in the ear and the auditory nerve. I will discuss some of the computational tasks that face the auditory system, emphasizing auditory scene analysis - the segregation and grouping of acoustic components into streams that roughly correspond to sound sources in the environment. I will illustrate how predictive coding may be used as a tool for auditory scene analysis, and then discuss our recent work on surprise responses, responses that reflect the failure of predictive models, in the auditory system. In particular, I will show how surprise responses develop along the ascending auditory system. While these responses reflect simple changes in frequency content at the midbrain, they become highly specific in auditory cortex. I will end with a short discussion of plasticity in the central auditory system and its interaction with auditory scene analysis, specifically with the surprise responses. Hearing impairment disrupts the input to these computational processes and engages plastic mechanisms that sometimes alleviate but sometimes also exacerbate the resulting deficits. Therefore, understanding central processing and its plastic properties is crucial for progress in hearing rehabilitation.