With usual decimal arithmetic "123" means 1 x 10 x 10 plus 2 x 10 plus 3. But with numbers to base 8 you count in eights rather than the usual tens. So "123" means 1 x 8 x 8 plus 2 x 8 plus 3. Working this out gives you 64 plus 16 plus 3 which is indeed 83.

More Info: en.wikipedia.org