OSI (Open Systems Interconnection) is a standard description or "reference model" for how messages should be transmitted between any two points in a telecommunication network. Its purpose is to guide product implementors so that their products will consistently work with other products. The reference model defines seven layers of functions that take place at each end of a communication. Although OSI is not always strictly adhered to in terms of keeping related functions together in a well-defined layer, many if not most products involved in telecommunication make an attempt to describe themselves in relation to the OSI model. It is also valuable as a single reference view of communication that furnishes everyone a common ground for education and discussion.
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Developed by representatives of major computer and telecommunication companies beginning in 1983, OSI was originally intended to be a detailed specification of interfaces. Instead, the committee decided to establish a common reference model for which others could develop detailed interfaces, that in turn could become standards. OSI was officially adopted as an international standard by the International Organization of Standards (ISO). Currently, it is Recommendation X.200 of the ITU-TS.
The main idea in OSI is that the process of communication between two end points in a telecommunication network can be divided into layers, with each layer adding its own set of special, related functions. Each communicating user or program is at a computer equipped with these seven layers of function. So, in a given message between users, there will be a flow of data through each layer at one end down through the layers in that computer and, at the other end, when the message arrives, another flow of data up through the layers in the receiving computer and ultimately to the end user or program. The actual programming and hardware that furnishes these seven layers of function is usually a combination of the computer operating system, applications (such as your Web browser), TCP/IP or alternative transport and network protocols, and the software and hardware that enable you to put a signal on one of the lines attached to your computer.
OSI divides telecommunication into seven layers. The layers are in two groups. The upper four layers are used whenever a message passes from or to a user. The lower three layers (up to the network layer) are used when any message passes through the host computer. Messages intended for this computer pass to the upper layers. Messages destined for some other host are not passed up to the upper layers but are forwarded to another host. The seven layers are...
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(This information courtesy of Whatis.com.)