Linux was started by Linus Torvalds in 1991 as a personal project. He was looking for a way to run a Unix-based operating system without spending a lot of money. In addition, he wanted to learn the ins-and-outs of the 386 processor. It was released free-of-charge to the public so that anyone could hack on it and make improvements under the GNU General Public License (see the section called Open Source and Free Software and Appendix A).
Today, Linux has grown into a major player in the operating system market. It has been ported to run on a variety of architectures including Compaq's Alpha, Sun's SPARC and UltraSPARC, and Motorola's PowerPC chips (through Apple Macintosh and IBM RS/6000 computers, for example). Linux is now being developed by hundreds (if not thousands) of programmers from all over the world. It runs programs like Sendmail, Apache, and BIND, which is some of the most popular server software on the Internet.
The term “Linux” really only refers to the kernel - the core of the operating system. This part is responsible for controlling your processor, memory, hard drives, and peripherals. That's all that Linux really does. It controls the operations of your computer and makes sure that all the programs behave. All those programs that make Linux useful are developed by independant groups. The kernel and programs are bundled together by various companies and individuals to make an operating system. We call this a Linux distribution.