ok, this is a long one, so don't say i didn't warn you.
let's start with the OSI layer, from bottom to top, PDNTSPA.
Application
Presentation
Session
Transport
Network
Data link
Physical
Physical referees to the actual transmission medium, copper, fibre, wireless, etc...
Data link is split into two sub layers, MAC Media Access Control and LLC Logical Link Control.
here's where MAC addresses come in. with a HUB, frames are rebroadcast over all lines, so there is no way to tell who's talking to whom. MAC addresses are used as a sender and receiver tags on the frames so systems know who's talking to who. a switch extends this more so, by unraveling the frame more, and only sending the frame to the proper MAC address.
the next layer up is Network. in TCP/IP the network protocol is IP Internet Protocol. while it is entirely possible send data directly over the MAC frame, it does not allow for multiple networks to be connected or to induce more then a fairly slim wire delay. a router corrects this by disassembling the data link layer, deciding where the packet should go based on it's IP address and writing a new data link layer for the next "hop".
in TCP/IP, the functions of the transport layer are split between the aforementioned IP, and the TCP and UDP session protocols. transport is responsible for getting packets over the network in the same way MAC is responsible for getting frames over the physical layer. there are other transport protocols, like ICMP, but they are not as important.
the Session layer is responsible for making a virtual channel for data to travel across, and ensuring that if any packets are lost, they get retransmitted. TCP, or Transmission Control Protocol, is a stateful session protocol, meaning that a channel must be negotiated between the two computers, and any data sent out must be acknowledged before moving on. UDP, or User Datagram Protocol is a stateless protocol, meaning that data can be sent off with no prior warning or delivery guarantee.
TCP is a phone call: "Hello" "Hello Bob, this is Adam" "Hello Adam, what's up" "just calling to tell you about the movie on Friday" "ok, got it, thanks Adam" "ok bob, bye-bye now" "bye"
UDP is a post card: "Bob- just a quick note to tell you about the movie on Friday"
in this way, TCP and UDP serve the same purpose for IP packets as LLC does for physical layer frames.
Presentation is the way data gets presented to applications, NFS, SMB, FTP, HTTP and Telnet are all good examples here. Mozilla and IE both use HTTP to get the actual data.
Application is, well, the application, IE or Mozilla as in the previous example.
hope that helps