Hmmm... more basic than my earlier post, huh?
Electricity has to flow from one place to another. In a battery it's going from + to - for instance. One side is the source, the other is the destination. We refer to this source and destination as having a difference in "potential", the potential for the electrons to flow from one place to another. The unit of measurement of that potential is the Volt. When electrons flow across that potential, we call the flow "Current" and the unit of measurement is the Ampere (amp). Work is done when current is allowed to flow across that potential, represented by the heat it produces or the electromagnetic force it exudes. This work is the produce of the relationship between the Voltage and the Amperage (and Resistance) and we call that work Watts.
In AC, + and - are constantly changing, but that doesn't mean the current can flow, it still needs potential difference at all times. In a US 240V 1 phase household system, you have 2 hot wires who's voltage (potential) relationship to each other is always 180 degrees apart, so like I said earlier, when one side is +, the other side is - and the current can flow across that potential difference as it should. When you have only 1 of those hot legs and you want to get some work done with it, you still need a place for the current to flow, some potential. It can always flow to "ground", essentially a zero-volt reference, because there is a potential difference between the hot and the ground.
The "Neutral" in that system is, as I said, at the same potential as the ground, but they (the utilities and safety organizations) don't want everyone hooking up their loads from hot to ground willy-nilly, so we create a current carrying path we call "neutral". It has insulated wires and is treated just like a hot wire, but for all intents and purposes is just that ground reference point so the potential energy in the hot wire has somewhere to flow.
In your panel, the ground and the neutral are connected at the panel. In my old hose in Seattle built in 1910, there is no connection there. It is made at the utility power pole. They had a conductor covered with a plastic sheath (it was wood up until a few years ago) coming down the pole going to a ground rod. As others said, the important issue is that the connection to ground is made at only one point. Otherwise, slight differences in the conductivity of the earth from one spot to another (salinity, moisture etc.) can cause ground currents to flow, and that has a host of other risks.
OK. I'm done.
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