An operating system, also known as an OS, is a software program that allows computer hardware (processor, memory) to interact with the software (games, music, applications). A computer must have an operating system in order to function. Without an operating system, a computer can't do anything useful for you.
The most popular operating system is Windows, created by Microsoft. The current version of Windows is Windows 7. Another extremely popular operating system is MacOS by Apple, the same company that makes the iPod and iPhone. Linux is an operating system popular with people who build their own computers from assorted parts.