What is the difference between system and application software?

System software is the code that defines what the computer is and how it controls and uses the hardware connected to it.

The computer that controls your VCR needs software to tell it how to use the display screen and what to do when the buttons are pressed etc.. The software that handles this is known as system software.

Application software is written to perform a specific task (or a group of related tasks). "Microsoft Word" for example is Application software. The application being a word processor.