Lung diseases and alveoli, illustration. Normal alveoli (left) and diseased alveoli (right), with cutaway sections to show the differences in appearance. Alveoli are the endpoints of the lung's airways, and are the site of gas-exchange with blood in the capillaries. Damage to alveoli can reduce lung capacity and cause permanent scarring. If the damage is irreversible or cannot be stopped, this damage can ultimately be fatal. Conditions that damage the alveoli include idiopathic pulmonary fibrosis.