802.11b/g/n WiFi and Bluetooth devices do interfere with each other, but a single Bluetooth device and Wifi can still be used together in the same area most of the time.
Although interference to WiFi from Bluetooth is severe, Wifi frames are usually so short that most of the frames can be received successfully in between the time that Bluetooth is transmitting. 802.11 will retransmit lost frames 7 times by default, so the packet loss is very low, and only a small reduction in performance occurs.
Since Bluetooth 1.2, Bluetooth has implemented adaptive frequency hopping. Bluetooth devices will avoid transmitting on parts of the 2.4GHz spectrum which are in use. So Bluetooth will avoid transmitting on the same frequency that wifi is using, at least in a close proximity environment where the wifi signal is strong enough to cause enough interference to Bluetooth for the AFH to detect it. If AFH is using the packet error rate implementation, it won't detect any busy portions of the 2.4GHz spectrum if the Bluetooth devices are close enough together that they aren't affected by interference. This is often the case, so AFH does not avoid Wifi in this situation.
When the distance of a Wifi link increases, the bitrate is reduced, and the duration of the Wifi frame is increased proportionally. This significantly increases the chance of the Wifi frame not completing before Bluetooth starts transmitting again. If a wifi link drops down to 6mbps from 48mpbs, the frame loss becomes so high due to Bluetooth interference that wifi can become unusable. Also, using 802.11n 40MHz mode will double the interference caused by Bluetooth.
Bluetooth randomly transmits across the entire 2.4GHz band, so it is not possible to change the Wifi channel to fix this issue.
Bluetooth usually transmits at 2.5mW @1MHz bandwidth, although some long range devices can go as high as 100mW. Wifi is typically 100mW @20MHz bandwidth. It may seem like Wifi is much more powerful than Bluetooth so interference from Bluetooth would be minimal, but it doesn't work like that due to the nature of the wide band signal. 100mW @20MHz is equivalent to 5mW @1MHz as far as interference is concerned at least in OFDM modes. Bluetooth is 2.5mW, which is close the 5mW @1MHz that wifi uses. Only a narrow slice of 802.11g OFDM frame needs to be interferred with for the entire wifi frame to be lost. Wifi will then drop down to 1Mbps DSSS which should be somewhat more tolerant of narrow band interference, but the Wifi range is still significantly reduced.
Many devices have Bluetooth and Wifi coexistance, which allows the Wifi and Bluetooth devices which are built in to the same device to be aware of when the other is transmitting
Here is a good article about Bluetooth adaptive frequency hopping: https://www.design-reuse.com/articles/5715/adaptive-frequency-hopping-for-reduced-interference-between-bluetooth-and-wireless-lan.html