OS is an an abbreviation for Operating System, the program that makes your computer usable, (for the most part). The term is now coming into "normal" speech as computing comes to bear more and more weight on our lives and ordinary people become more tech-aware.
This might be partially due to the rise in popularity of the Macintosh platform which pragmatically calls its native operating system "OS - whatever version", the current version being OS X.
We'll be seeing the this term more if a version of OS X becomes available for the Intel PC platform, as is rumored in some quarters.