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The most popular filesystem (based on the # of installations worldwide) is the FAT/FAT32 (File Allocation Table) filesystem used by Microsoft Windows - it is where the files are being stored and retrieved by the operating system and the user.
If you are using Windows and you partitioned your harddrive into several, or you have more than one harddrive, you will see C:, D:, E: drives, and so on. These are treated as different drives, and at the same time, different filesystems. For instance, D: can be a CD-ROM that contains StarCraft (a game), your E: drive might be a Zip drive. A CD-ROM uses the ISO9660 filesystem and can be read from Windows. A Zip diskette can have any filesystem, and once you format it in Windows, it will have FAT filesystem. your C: drive is also filesystem using FAT technology.
In other words, a filesystem is how a physical media (CD-ROM, Zip, Superdisk, DVD, Harddrive) is organized to store files. The operating system must support the particular filesystem in order to access data. Windows does not support Ext2 filesystem (used by Linux) but supports CIFS (Common Internet FileSystem) that enables using UNIX file servers on a Windows network, or visa versa.
A good filesystem provides or supports: