In the simplest terms, Linux is an operating system. It was created in October 1991 by a University of Helsinki student named Linus Torvalds (Linux stands for Linus's UNIX). Linux itself is actually just the kernel; it implements multitasking and multiuser functionality, manages hardware, allocates memory, and enables applications to run.
The average user will never be interested enough in any operating system to want to know about things like kernel internals. Only the truly dedicated -- those who have no personal lives, or those who are being paid to do this kind of work -- are going to want to explore these intricacies.
But even if you never descend to the giddy depths of kernel hacking yourself, it is reassuring to know that you can easily hire a contractor or firm to do this work for you; to commission such modifications for a proprietary system is very often a more difficult and more costly undertaking.
For the beginner, probably the most important thing about the kernel that you need to remember is that odd-numbered kernel versions (in other words, 2.3, 2.5, 2.7) are the experimental, development kernel. Stable, release kernels carry even numbers (in other words, 2.4, 2.6, 2.8).
A typical Linux distribution includes the Linux kernel, but it also contains many application programs and tools. For the most part, many system- and user-level tools found in a Linux distribution come from the Free Software Foundation's GNU project (GNU standing for "GNU's Not UNIX").
Both the Linux kernel and the GNU tools suite are released under the GNU General Public License, or GNU GPL. If you are not already familiar with the GNU GPL, the best way to begin to understand it is to go and read it. At the risk of summarizing away some important parts, the GNU GPL is a way of setting computer code free so that the people who use that code may meddle and experiment with it to their hearts' content.
- We highly recommend this interesting writeup of Linux history from Linus Torvalds' former officemate, Lars Wirzenius.