Basically, a photovoltaic (PV) solar panel works by converting light energy from the sun into electrical energy that we can use.
(Check out wikipedia for a more indepth explaination for the scientifically minded.)
A solar system is a group of components which include the solar panels. It takes energy from the sun...converts it to electricity and then does something with the energy. In the case of a grid-connect system this means it provides electricity to your home, office or workshed.
A grid-connect solar system takes electricity from the panels and feeds it into a grid-connect inverter. The inverter converts the energy to make it match the grid supply and allows excess energy to flow back into the grid after supplying the household needs.
The image below explains how a grid connect solar system works.