System is a class, using it directly in this manner means you want to use a public static item from it.
out is the public static item you are using. It is an OutputStream that is used for the Standard Output (STDOUT, there is another for STDERR) of the running java application.
println() is of course a method of an OutputStream object that prints bytes to the device pointed to by the OutputStream object. In this case, usually the command line or an Application Console, unless redirected.