Using the bitarray module, you can do it a lot quicker for big numbers:

Benchmarks (factor 2.4x speedup!):

janus@Zeus /tmp % python3 -m timeit -s "import tst" "tst.tst(10000)" 
10 loops, best of 3: 251 msec per loop
janus@Zeus /tmp % python3 -m timeit -s "import tst" "tst.tst(100)"  
1000 loops, best of 3: 700 usec per loop
janus@Zeus /tmp % python3 -m timeit -s "import sevenbittoint, os" "sevenbittoint.sevenbittoint(os.urandom(10000))"
10 loops, best of 3: 73.7 msec per loop
janus@Zeus /tmp % python3 -m timeit -s "import quick, os" "quick.quick(os.urandom(10000))"                        
10 loops, best of 3: 179 msec per loop

quick.py (from Mark Byers):

def quick(bites):
  i = 0
  for b in bites:
    i <<= 7
    i += (b & 0x7f)
    #i += b
  return i

sevenbittoint.py:

import bitarray
import functools

def inttobitarray(x):
  a = bitarray.bitarray()
  a.frombytes(x.to_bytes(1,'big'))
  return a

def concatter(accumulator,thisitem):
  thisitem.pop(0)
  for i in thisitem.tolist():
    accumulator.append(i)
  return accumulator

def sevenbittoint(bajts):
  concatted = functools.reduce(concatter, map(inttobitarray, bajts), bitarray.bitarray())
  missingbits = 8 - len(concatted) % 8
  for i in range(missingbits): concatted.insert(0,0) # zeropad
  return int.from_bytes(concatted.tobytes(), byteorder='big')

def tst():
  num = 32768
  print(bin(num))
  print(sevenbittoint(num.to_bytes(2,'big')))

if __name__ == "__main__":
  tst()

tst.py:

import os
import quick
import sevenbittoint

def tst(sz):
    bajts = os.urandom(sz)
  #for i in range(pow(2,16)):
  #  if i % pow(2,12) == 0: print(i)
  #  bajts = i.to_bytes(2, 'big')
    a = quick.quick(bajts)
    b = sevenbittoint.sevenbittoint(bajts)
    if a != b: raise Exception((i, bin(int.from_bytes(bajts,'big')), a, b))

In Python values like 'hello'[2] are also strings (in this case == 'l'). You need to convert them to integers using ord and back to string using chr.

elevation = [[],[]]
maxheight=0

b = open("C:\\Users\\CNA\\sketchbook\\_SRTM\\data\\N59E010.hgt","rb")
fin = b.read() # you probably need to read more than 1 byte, this will read whole file
print(len(fin))
ix = 0
for row in range(0,1201):
    for col in range(0,1201):
        hi = (ord(fin[ix])   + 0xff) # ord returns unsigned integer, so you probably don't need to convert it
        lo = (ord(fin[ix+1]) + 0xff)
        el = (hi << 8) | lo

See: http://docs.python.org/library/functions.html