Students at Hogwarts are grouped into four houses: Gryffindor, Ravenclaw, Hufflepuff, and Slytherin. When the students arrive on September 1 of their first year, they travel from the train station in Hogsmeade to Hogwarts castle by means of a fleet of small boats, led by Hagrid. They are brought into the Entrance Hall, where they are met by McGonagall, who explains the house system:

"The start-of-term banquet will begin shortly, but before you take your seats in the Great Hall, you will be sorted into your houses. The Sorting is a very important ceremony because, while you are here, your house will be something like your family within Hogwarts. You will have classes with the rest of your house, sleep in your house dormitory, and spend free time in your house common room.

"The four houses are called Gryffindor, Hufflepuff, Ravenclaw, and Slytherin. Each house has its own noble history and each has produced outstanding witches and wizards. While you are at Hogwarts, your triumphs will earn your house points, while any rulebreaking will lose house points. At the end of the year, the house with the most points is awarded the house cup, a great honor. I hope each of you will be a credit to whichever house becomes yours." (SS7)

Each house has a common room and dormitories where students sleep and spend their free time. Students do their studying and spend their free time in their common room when they aren't in the library [1]. The common rooms have comfortable chairs and assorted tables for students to work at and to play games such as Wizard's Chess or Exploding Snap. Each common room also has a large fireplace.

Each house has a Head, a staff member who is responsible for the students in that house. There are also several Prefects from the houses. Each house also has a resident ghost and an animal. The Heads, animals, colors, and ghosts of each house are as follows:

The crests of each house show their colors and their animal:

The four houses compete for House Points. Whichever house gets the most points over the course of the year wins the House Cup. These points are tracked by means of four huge hourglasses. Each house has a Quidditch team. These teams compete through the year as well, and the victor of the Quidditch contests wins the coveted Quidditch Cup.
 

1 - At no point is the Great Hall used for studying, contrary to what appears in the film. Also unlike what we see in the film, the common rooms are almost always filled with students until late in the evening.