An operating system is the software that communicates directly with your computer hardware. Applications (such as your word processor or e-mail program) can only work via an operating system.
The operating system's job is to ensure that your applications get optimal performance from the hardware.
You may already be familiar with previous versions of Windows - the Windows 3.x series. These were good systems for their time, but are not capable of getting the most from modern hardware. The main limitation is that they are not complete operating systems in themselves - they work in combination with the MS-DOS system. This makes them slightly cumbersome, and ties them to the technological limitations of MS-DOS.
In breaking from MS-DOS, Windows 95 is freed, for example, from tight restrictions on how memory and disk space can be used.
