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Linux by itself, while being a neat programming feat, is just the kernel of an operating system. It requires other tools to become a 'full' operating system, most of which are provided in general by GNU. A distro is a suite of programs and utilities bundled together and packaged in a convenient format (such as CD, or DVD), and there are many popular distros available.

Why do distros exist?

Technically, there's no 'Linux operating system' per se. Right from the birth of the Linux kernel, individuals and small companies began assembling collections of Free Software to surround the kernel and create a usable OS. As 'Linux' improved and grew in popularity, more distros appeared -- some targeting desktop users, some geared towards servers.

The upside to the number of distros is the level of choice and competition. The multiple desktop distros (eg Mandriva, Ubuntu and SUSE) all strive to keep ahead of one another, so that's great for users. Similarly, it means you can get a highly focused distro to install on your Pentium box as a router -- no need to install a big desktop distro and spend time stripping it down.

Of course, the downside is that most distros differ in a few key aspects, such as file locations, library versions and configuration tools. This makes it more difficult to support 'Linux' as a whole, and make binary packages that will run on every distro. Efforts such as the Linux Standards Base and Autopackage aim to overcome these hurdles.