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Question: Is it true that people can't actually touch each other because the atoms aren't actually touching?
Jennifer, you have just asked a profound question that "touches" the fundamental principle of the Universe! The theory of physics behind it may be confusing, so let me go right to the answer. Yes, that is true that no pair of atoms can physically "touch" each other, or at least in the way we think two objects are touching one another. This is because they are covered by "shells" made of electrons. The word "shell" may be misleading here, since electrons don't form eggshell-like hard materials at subatomic scales. You can imagine more foggy, fuzzy clouds of electrons surrounding atomic nuclei.
And this is where a fundamental principle in physics comes in. It is called the "Pauli exclusion principle," discovered by Austrian physicist Wolfgang Pauli in the early 20th century. This principle tells a deep scientific fact that no two identical "fermions" can occupy the same "quantum state" simultaneously. "Fermions" are a family of elementary particles that constitute the matter, and electrons are in this family too. A "quantum state" is rather hard to explain, but let's assume it means a place or location, for now. So, in essence, this principle says two electrons can't be at the same location at the same time.
Because of this principle, any two shells made of electrons can't soak into each other, keeping the nuclei of two atoms apart and protecting them from collision. Ultimately, this is why the matter we see in our everyday life has a volume. Elementary particles are just points in space without a volume, but thanks to this principle, atoms stay apart and we can occupy some space without collapsing into a single point.
I should also mention that there is another family of particles, called "bosons." Particles in this family are free from the Pauli exclusion principle. A famous example of such particles is photons, i.e., light. Multiple photons can occupy the same location simultaneously, which is why light doesn't have a physical volume.
Let me get back to your original question. Atoms can't touch each other, but does that mean people can't touch each other either? Think about a hypothetical scenario where we were all made of bosons that are free from the Pauli exclusion principle. Then atoms in your body would collapse into a much smaller space so you wouldn't maintain any meaningful volume. Or, even if you could, your body would go through others when you try to hug them, because there was no exclusion principle. In other words, because atoms can't "touch" each other, we, as a macroscopic bulk matter, can touch and feel each other. This is very interesting, isn't it?
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