The spectral weight functions and the optical conductivity of the Holstein
model are studied on a one-dimensional six-site lattice with periodic bound
ary conditions for three different electron concentrations: a single electr
on, two electrons of opposite spins, and half filling. A density matrix app
roach is used to obtain an optimal phonon basis and to truncate the phonon
Hilbert space without significant loss of accuracy. This approach allows us
to calculate spectral functions for electrons dressed locally by the optim
al phonons as well as for bare electrons. We obtain evidence for a smooth c
rossover from quasifree electrons to a heavy itinerant small polaron (singl
e-electron case) or bipolaron (two-electron case) as the electron-phonon co
upling strength increases. At half filling, we observe a crossover from a q
uasifree-electron ground state to a quasidegenerate Peierls charge-density-
wave ground state for a finite electron-phonon coupling. This crossover is
marked by an abrupt drop of the Drude weight, which is vanishingly small in
the Peierls phase. [S0163-1829(99)04135-1].