A distribution, sometimes called a distro is a combination of OSS packaged together for a particular purpose. The Linux kernel is the basis for a complete operating system. This kernel is combined with utilities like those created in the GNU project along with other components like a window manager to create a graphical user interface and a desktop manager. Compare this to Windows XP or Mac OSX with one major difference. Since all of this software is open source, it be combined in a myriad of ways or modified to fit specific purposes.
Distrowatch is a great source of news and information on the various distros now available.
Slackware and Debian were among the first distos, and many others followed. Another prominent and commercial distribution is Redhat Linux.
A unique feature of OSS that is clearly seen in distributions is branching. Branching occurs when an individual or community of users want to build on an OSS project, but take it in a different direction. Distros are a myriad of branches.
The most popular linux distros are Ubuntu Linux and PCLinux. Ubuntu is a branch of Debian and PCLinux is a branch of Mandrake, which is a branch of Redhat.