Abstract: The underlying objective of this invention is to show how fuzzy sets (and information granules in general) and grammatical inference play an interdependent role in information granularization and knowledge-based problem characterization. The bottom-up organization of the material starts with a concept and selected techniques of data compactification which involves information granulation and gives rise to higher order constructs (type-2 fuzzy sets). The detailed algorithmic investigations are provided. In the sequel, we focus on Computing with Words (CW), which in this context is treated as a general paradigm of processing information granules. We elaborate on a role of randomization and offer a detailed example illustrating the essence of the granular constructs along with the grammatical aspects of the processing.