The Caste System in India is a word for India's ancient social structure in which Indian society is divided into five heirarchical segments based on birth.
In India it is traditionally known as the 'Four Varna System'. 'Caste System' is the anglicized name for India's social order.
History has it that the use of the word 'Caste system' started with the Portugese who came to India and were witness to a social system they could not understand.
They, therefore ended up calling it as 'Casta' meaning undefinable. Caste is the anglicized form of 'Casta.'
The caste system was introduced in ancient India by Aryan invaders who verticialized the existing Indian horizontal social structure on the basis of what they presented as the divine order emanating from the Hindu God 'Brahma.'
In the caste system you have five segments namely Brahmin, Kshatriya, Vaishya and Sudra. The fifth segment consists of what is known as 'the Untouchables' or 'outcastes' i.e they do not belong to the normal society but are outside of it, having no legitimate place as humans. This fifth segments is also now commonly known as Dalits.
According to the tenets of the caste system as laid out in various 'Smriti' (tradition or law) the Brahmin sits on the top of the caste system because he originates from the head of 'Brahma' according to caste laws.
The Brahamins are the priestly class and are traditionaly and historically known to reap the cream of all efforts of the castes below them. They are also the ones who had the prime privelege of learning and knowledge in all its manifestations through 3500 years - that's when the caste system started as is generally concurred by scholars.
Historical data has it that the Brahmins were not always at the top, but it was the 'Kshatriyas' who were. However, the Kshatriyas were edged out of the top position by the Brahmins by instituing various religious laws and todate, they continue to be at the top of India's social structure.
Below the Brahmins are the Kshatriyas, originating from the chest of Brahma and they have traditionaly been the princely or ruling class.
Next come the 'Vasihyas' or the trader/business class. This caste has traditionally controlled all the business and related occupations in India and even today most of the businesses in India are run by this class.
These three castes together control most of the wealth and power in India and hold affluent positions and jobs in society.
The fourth strata are the Sudras. The sudras have only one job and that is to serve the three castes above them.
The sudras are essentially the product of metisation (cross-breeding) between the Aryan rulers and the locals) and it is argued that it was their mixed blood that has earned them a place in the established four-caste system, albeit a very low one.
Then come those who are outcastes.i.e. they do not belong to the Indian established social structure and are known as Dalits.
Historically, the Dalits are none other but the original inhabitants of the Indian sub-continent subjugated by the Aryans conquerors.
The reasons for making these original inhabitans of India into outcastes are various and described at length in the eBook 'Truth About Dalits.'
It is the outcastes, the Dalits who along with the Sudras (to a lesser degree) face the brunt of the excesses of the caste system including discrimination, violence and seclusion from mainline society.
Note: This is just very scanty information of the Caste System. You can get a detailed idea about the Caste System including its origin, justification, perpetuation etc, alongwith detailed analysis in the eBook 'Truth About Dalits".