A system in this case is any "location" accessible by a jump point (I say this because I believe you may be able to create a location without a star or planets, and it would just have one or more jump points. Think of a system as a room, and the jump points as doors. The room may have stars, planets, etc., in it, or it could be empty. The doors connect rooms of different numbers, but rooms 2 and 3 (for example) do not have to be next to each other, and the numbers do not indicate a distinct physical location.
The system number is just how the room is identified to the computer, and the maximum system number indicates how many rooms there are. This defines the maximum size of the universe for your game.
The local system generation chance and the local system generation spread affect how the systems connect to each other. If you set the system generation spread to 10 (for example), and the generation chance to 50%, then each jump point has a 50% chance to connect to a system number that is within 10 of the originating system. While I said that the system numbers don't equate to a position, having lots of connections within a short "spread" of systems gives you a higher chance of having systems connect back on each other into loops, where you might have two or more relatively short paths connecting two systems. With a very large number of systems and a large spread, you would have fewer loops which would tend to be much larger, which would usually leave you with only one practical path between any pair of systems you explore.
As to your starting system number, I believe it is "1" by default (not at home to check), but it could just as easily be randomly assigned. Checking your system numbers can be useful, in that they can give you an idea as to how likely they are to connect back to other systems you have explored (i.e. they are more likely to connect to other systems within the "system generation spread" above, so if your currently explored systems are 1, 5, 17, and 215, then exploring from 5 and 17 are more likely to connect back to 1 or each other than is 215.), or whether it leads you to a different "local area" of your universe.
Mike
