Linux is an operating system, just like Windows, MacOS, Symbian, and many more. An operating system is the software that translates things we humans can cope with like looking at a screen, pushing a mouse around or tapping a keyboard into code that computer hardware can understand. Strictly speaking 'Linux' is the kernel, the very heart of the the operating system, but it is usually supplied by a distributor along with thousands of extra bits of code to make a complete desktop environment with windows, 3D effects and multi-media capabilities.
Free Software
Linux is 'free', and the quotes are there for a reason. Free means two different things in English other languages such as French do it better, they have gratuit meaning no cost and libre meaning at liberty. Linux is free in the sense that it can be copied , given away or sold, it can be modified or totally re-written the user is at liberty to do whatever he/she wants to do with it. But those rights apply to everyone, no-one can create a new version that denies those rights to others. To make this clear Linux is released under a licence defined by the Free Software Foundation
In order to modify software developers need access to the source code, which proprietary software companies normal guard jealously. Free Software developers release their code on the Internet for anyone to download. Most users never need to see it but other developers do, they can learn from it, they can copy bits that are useful for their own projects, they can suggest improvements and crucially they can spot bugs and fix them. This openness gives rise to an alternative name for such software – Open Source Software (OSS) and sometimes Free/Libre Open Source Software (FLOSS).
Distros
Because Linux and all the OSS that goes with it is free anyone can copy it, make their own version and re-release it . So there are lots of them. People, groups or companies that distribute Linux are known as Distros. Some distros are optimised for use on corporate servers (Google runs thousands of Linux servers), some for rendering animated movies (Pixar runs hundreds of them), some for desktop PCs, some for netbooks, some for smartphones. There are even versions of Linux embedded in machine tools.
Amongst the desktop versions there is room for specialisation, there are versions for running Media Centre PCs or for media production, there are versions for minority languages or to suit people of certain religious persuasions, but the most popular distros are those which, like Windows and MacOS are able to deal with a wide range of tasks.
Popular Distros
There are literally thousands, but many are very small niche products, for most users there are a handful of reputable general purpose distros, listed by DistroWatch
Top of the list for some years has been Ubuntu, the default set up as shown by the Distrowatch screenshot is very boring but Linux distros are capable of a lot more customisation than other operating systems, on this page you can see the Kubuntu variant running on desktop PC, and Ubuntu tweaked to resemble Mac OSX on a tiny netbook.
Most distros are free in the no-cost sense, it's hard to charge for software when the source code is available online, but there are commercial versions too.
There are large corporations such as Redhat selling Linux to other large corporations, they optimise it for their customer and provide the sort of support and service that is vital for a big business.
There are smaller distros like Xandros selling basic desktop versions that include proprietary software such as some media players that cannot be given away free, and these also come with some support.
Whilst there is no company support for free distros there are excellent forums and user groups, users of popular distros can usually get answers faster than those using commercial software!
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