The windows, menus, and dialog boxes most people think of as part of the operating system are actually separate layers, known as the windowing system and the desktop environment.
These layers provide the human-oriented graphical user interface (GUI) that enables users to easily work with applications in the operating system and third-party applications to be installed on the operating system.
In Linux, there a lot of choices for which windowing system and desktop environment can be used, something that Linux allows users to decide. This cannot be done in Windows and it's difficult to do in OS X.
Like the operating system and kernel, there are tools and code libraries available that let application developers to more readily work with these environments (e.g., gtk+ for GNOME, Qt for KDE).
Operating systems have two kinds of applications: those that are essential components of the operating system itself, and those that users will install later. Closed operating systems, like Windows and OS X, will not let users (or developers) pick and choose the essential component applications they can use. Windows developers must use Microsoft's compiler, windowing system, and so on.
Linux application developers have a larger set of choices to develop their application. This allows more flexibility to build an application, but it does mean a developer will need to decide which Linux components to use.
This is the highest layer of the Linux operating system: the container for all of the aforementioned layers. A distribution's makers have decided which kernel, operating system tools, environments, and applications to include and ship to users.
Distributions are maintained by private individuals and commercial entities. A distribution can be installed using a CD that contains distribution-specific software for initial system installation and configuration. For the users, most popular distributions offer mature application management systems that allow users to search, find, and install new applications with just a few clicks of the mouse.
There are, at last count, over 350 distinct distributions of Linux.