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.