The operating system manages all hardware and software on a computer. It performs key functions like processing data, managing memory and storage, and providing a user interface. There are different types of operating systems based on features like whether they are single-user or multi-user, how they handle multiple tasks, and if they are designed for real-time or distributed systems. The operating system controls what the CPU processes, allocates memory and storage space, and provides graphical or command line interfaces to interact with users.