Linux distributions are more or less complete systems of the kernel, drivers, utilities and applications that users may choose to install on their computers. There are often separate streams for different hardware (e.g., Macintosh, Intel 386 family, etc.) and for different major versions of the kernel. If you are a novice, you will likely want to use a distribution that has a lot of the work done for you. If you really need to work with some pretty off-the-wall things, then you will want to be much closer to the source code of the kernel and utilities.
There are many specialized distributions, but most are put together based on particular ways of installing and managing the applications programs we want to use.
An arguably more sophisticated package management system is at the center of the Debian family of distros, which includes the very popular Ubuntu Linuxes as well as the very useful liveCD system Knoppix. The Debian packages are of type .deb. There is even a package called 'alien' that lets rpm's be converted to deb's. Some commercial packagings such as Xandros Linux use Debian as their base, including the recent Asus Eee PCs, which come preloaded with the software and are like appliances.
For the purists, packages should be in source code form, archived and compressed using the 'tar' (Tape ARchive) program – note that this goes back many years – and compressed with the gzip algorithm. Such files of type .tar.gz are called 'tarballs'. You can actually build packages from tarballs by extracting the files and running various utilities and compilers and linkers – it is lots of work. The Gentoo distro is based on using such ideas (??correction requested if needed??) to “emerge” programs.