Linux is one of the best known results of the open source movement. In the past, in the very early computer days, computers were only present in research and educational institutions, no one had it at home and there were no software companies that made their software to sell it. Computer professors used to make their software programs and share them with other professors. They not only gave each other their programs to run, but even gave them the source code so that they could build on it and improve the program itself.
Later on, when computers popped out of the research institutions and became more widely used for real life purposes, software companies started to appear. Software companies made programs which they sold for money to others. In order to protect their programs, of course they only sold the executable version of their program while keeping the source code of the program hidden. Protection of the source code of software programs was, and still is, a priority for software companies. Microsoft fights with all its might to keep its source code hidden and not reveal it to any outsider.
Although this helped software companies make profits and grow their business, it kind of slowed down on innovation that was present in the very early days of computer when everyone shared the source code of his programs with others whom could then benefit from it and even improve on it to build something more and more useful and powerful. As a result of the strong hold software companies had on their source code, a counter movement took place which called for getting back to the days when you were able to share your source code with everyone without restriction. A professor from MIT (Massachusetts Institute of Technology, which is the #1 ranking computer educational institute in the US) resigned from his work at MIT and started calling for the open source movement. He started the GNU project. He resigned so that he would not be obliged by any copyright laws from MIT that could restrict him from sharing the source code of his programs.
The GNU project found a lot of supporters and aimed at making software of all kinds that was open source, that means, anyone can see the source code of the programs made, and add to it to improve it by fixing bugs or adding features. They aimed at creating an operating system and many supporting applications and tools. In another part of the world, Linus Torvalds, from Finland, started creating the 'heart' of an operating system which he also made its source code available for everyone to see. The heart of an operating system (its innermost layer) is called the kernel. (Even Windows has a kernel but its too hidden for us.) The GNU project were creating their own kernel. But, it happened that the kernel created by Linus (which he called Linux after his own name) was kind of ready and was then integrated into other software created by the GNU project to reach a fully functional operating system. This operating system (the combination of the kernel developed by Linus and the GNU software) was called GNU/Linux. These days, most people just call it Linux for short, while in reality, only its kernel is Linux and the rest of it is GNU software.
Many have taken the source code of the kernel and some software from the GNU project compiled them all and created a fully working operating system, which today we call Linux. In order to get the Linux operating system, you do not have to compile the source code yourself, but you can download an executable version of it at once which has been compiled by someone else.
Those who compile the kernel + GNU software can select which software exactly to include and which version of the kernel and what configuration and so on. After compilation is done, the result of the compilation is called a Linux distribution, or in short a Linux distro.
Red Hat, Fedora, SUSE and the many other flavors or Linux are nothing but different distros of the Linux operating system. Those companies get the source code of the kernel and that of GNU software, compile it and may also add some of their own software to it, then distribute it as a Linux distro with their own name on it. They usually distribute it for free, or take a very low fee to give you a copy on CDs. As for how they make money, they do so by selling maintenance services along with other services. If you ever decide to build your own distro of Linux by compiling the kernel and other GNU software, here is a good place to start: Linux From Scratch. If you are new to Linux, of course you must first try installing and using ready distros long before attempting to create one yourself.
I hope this brief introduction to Linux has helped clear the meaning of the terms "distro," "kernel," "Linux," "GNU" and "open source." I also hope it has paved the way for you to learn more about what open source is all about.