A caste system is a process of placing people in occupational groups. It has pervaded several aspects of Indian society for centuries. Rooted in religion and based on a division of labor, the caste system, among other things, dictates the type of occupations a person can pursue and the social interactions that she may have. Castes are an aspect of Hindu religion. Other religions in India do not follow this system.
Castes are ranked in hierarchical order (originally, the system wasn’t to have a hierarchy based on occupation or birth but purely on personality; this has been skewed somehow over time), which determines the behavior of one member of society over another.
The ancient Varna system did not have much of significance in the social order in the society. If one was a Brahmin, it may have meant a lot to other Varnas, but inside his own Varna, he was just another individual with no identity. The need for identity within a single Varna led to the development of Jati system inside the Varna system. There was no Jati system in ancient India, and even the Chinese Scholar Hsuan Tsang has not mentioned anything about it in his writings. The literal translation of the word Jati gives us the word birth.
Jatis developed much later in India to reflect the trade or profession of a particular community. So, while Gandhi comes from Gandha which means smell, the community of Gandhis is the one that trades in perfumes. Dhobi community came from the word dhona which meant to wash, and thus Dhobis were people who washed other people’s clothes. Thus, a jati is a community engaged in a particular profession or trade. This system of classification continued in modern India till recently, and a person’s surname was enough to let others know all about his profession. However, with modern education system and no discrimination from the state, this caste system or the Jati system is on the decline.