The electrical grid is the intricate system designed to provide electricity all the way from its generation to the customers that use it for their daily needs. These systems have grown from small local designs to what they are today, stretching thousands of kilometers and connecting millions of homes and businesses.
Electricity begins in power plants which work to convert mechanical energy of a turbine into electrical energy by the use of a generator (with the exception of solar power, which uses photovoltaic cells to accomplish this). Power plants require the energy from fuels such as coal or natural gas, or flows, such as wind and sunlight, in order to do this. These plants generate lots of electricity and are often far away from the demand for electricity; the next system solves this problem.
Electrical transmission is accomplished by the use of power lines. Electricity exiting the power plant passes through a transmission station where the electricity is "stepped-up". This means that the voltage is increased, with a proportional decrease in the current (the amount of electrons that are flowing per second). This increase in voltage is accomplished by a transformer. This electricity can flow long distances, with a typical maximum distance being around 500 kilometers.
The reason that step-up transformers are used is because when travelling long distances through a conducting wire, electricity will inevitably lose energy to resistance. This problem is essentially solved (not completely, but to an acceptable level) by the use of high voltage power lines. The corresponding power loss in the lines decreases by the square of the current, meaning that if the current dropped by a factor of 2, the power loss drops by a factor of 4.
The distribution of electricity first begins with distribution substations that use "step-down" transformers, which perform the opposite task of the "step-up" transformer. The voltages of long distance transmission are unsafe for people to handle, so these step-down transformers bring the voltage down to safer levels. The distribution grid then connects these substations to the customers that require electricity, ranging from large industrial buildings to small homes. More substations and smaller transformers (such as the green boxes seen in Figure 2) help to further lower the voltages, and divide the electricity among subdivisions.
The image below shows a simple grid setup. In reality there are many more of each system connected to the grid, however for a conceptual grasp this image should demonstrate how interconnected even a simple grid may be.