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Often times you may hear the term "Operating system", often abbreviated to simply "OS".  The operating system of a computer can be related to roads, more or less.  Individual programs are the cars, but they can't get anywhere without a road to drive on.  That is what Windows (your operating system) is.  It is the system on top of which all individual programs run, or the road on top of which the individual cars drive.  If you did not have Windows you could not run programs.

An operating system is, itself, a very complex piece of software.  Its purpose is to bind together all the hardware and software in your computer and make it work together.  When Windows loads it loads "drivers" (not related to the "roads" analogy) for all of your hardware.  A driver is a piece of software that tells your computer how to make that hardware work.  Once Windows is booted up and going it now knows how every piece of hardware in your computer works.  What this means for your programs is that they don't need to know how everything works, they just need to know how Windows works.  So instead of your computer game telling the sound card how to make sound and the video card how to make graphics, the game just tells Windows what it wants done and Windows figures out how to make it all work.

The benefits of this are immense.  There are literally millions of different pieces of hardware, each one controlled differently.  To write a simple calculator without an operating system you would have to tell the computer how to use the keyboard, how to draw each letter and number, how to use the computer screen and so on.  Even a simple program would be huge and would take forever to write.  The simplest programs would be huge, complex and expensive.  But since Windows does all of the backgrounds stuff for you a calculator program is simple, small, and fast to produce.

Normally you would not have to know any of this, but is is important from time to time.  For instance, when you want to download drivers for your printer, you need to know which operating system you have.  There are different drivers for Windows XP, Windows Vista 32 bit, Windows Vista 64 bit, Windows 7 32 bit and Windows 7 64 bit, for instance.  For this reason it is important not only to understand what an operating system is, but which one you have.

Another point of confusion I have seen in the past is the distinction between Windows and Office.  Microsoft Word, for instance, is a part of Microsoft Office.  It is not a part of Microsoft Windows.  People are sometimes confused when buying a new computer that it does not come with Microsoft Word while their previous one may have.  The reason for this is usually that the last time they bought a computer it was a prepackaged model which came with specific features and programs which could not be tailored and when they are buying a new computer they are purchasing a custom built system where they get only the programs and features they want to pay for without any extras they may not need or use.