Consider the following: you want a program to print out your username. How will this program know it? For this in Linux there are environment variables. What this means is that there are many variables in your shell, many of which are set up automatically, and every time you run a program, some of them are passed to this program.

To elaborate on this:

1. Some variables are set just for your current shell. They are called local shell variables. You can list them by typing set, a bash built-in command, which means that no other program is started then you execute it. This command is processed by bash itself.
2. Other variables are passed to every program you launch from your current shell. They are called environment variables and can be listed by env program, which means that then typing env you will see what variables every program you start gets.

You may want do dig a bit deeper. To do this, grasp the concept of a subshell which is a child process that is created when you run a program and which becomes your program.

Now you will learn how to create variables and how to use them.

1: foo='Hello World!'
2: echo $foo
3: set | grep foo
4: env | grep foo
5: export foo
6: env | grep foo
7: foo='ls -al'
8: $foo

uset1@vm1:~$ foo='Hello World!'
user1@vm1:~$ echo $foo
Hello World!
user1@vm1:~$ set | grep foo
foo='Hello World!'
user1@vm1:~$ env | grep foo
user1@vm1:~$ export foo
user1@vm1:~$ env | grep foo
foo=Hello World!
user1@vm1:~$ foo='ls -al'
user1@vm1:~$ $foo
total 36
drwxr-xr-x 2 user1 user1 4096 Jun 14 12:23 .
drwxr-xr-x 3 root  root  4096 Jun  6 21:49 ..
-rw------- 1 user1 user1 4042 Jun 15 18:52 .bash_history
-rw-r--r-- 1 user1 user1  220 Jun  6 21:48 .bash_logout
-rw-r--r-- 1 user1 user1 3184 Jun 14 12:24 .bashrc
-rw------- 1 user1 user1   50 Jun 15 18:41 .lesshst
-rw-r--r-- 1 user1 user1  697 Jun  7 12:25 .profile
-rw-r--r-- 1 user1 user1  741 Jun  7 12:19 .profile.bak
-rw-r--r-- 1 user1 user1  741 Jun  7 13:12 .profile.bak1

1. Creates a variable foo and places the line “Hello World!” into it.
2. Prints out variable foo.
3. Prints out list of all your environment variables, which is passed to grep, which prints out only lines containing variable foo. Notice how variable foo is present.
4. Prints out all list of your environment variables which are passed to any program you execute. Notice how variable foo is absent.
5. Makes variable foo available to all programs you execute from the current shell.
6. Now you can see that your variable is indeed available to all programs you execute.
7. Puts ls / into variable foo.
8. Executes a command which is contained in variable foo.

1. Type in and execute env and set. See how many different variable there are? No worries, usually you can quickly understand what a variable does by googling it. Try to do this.
2. Try typing:

   set | egrep '^[[:alpha:]].*$'

   Now, try just set. See what I did here? Quick explanation is that

   egrep '^[[:alpha:]].*$'

   prints out only those lines which start with alphanumeric character, that is every letter, and omits any other lines. Don't bother too much with this for now. Don not bother about | symbol either, I will explain it later on.

3. Read about difference between env and set here: http://stackoverflow.com/questions/3341372/differnce-between-the-shell-and-environment-variable-in-bash Remember, stackoverflow is your friend! I will repeat it many times.
4. Try typing set FOO=helloworld bash -c 'echo $FOO'. Explanation is here: http://stackoverflow.com/questions/10938483/bash-specifying-environment-variables-for-echo-on-command-line. Again, don not bother with this too much, it will come to you after lots of practice automatically, I promise.
5. Try this:

   PS1_BAK=$PS1
   PS1='Hello, world! $(pwd) > '
   PS1=$PS1_BAK

   Notice how I used $(pwd) to access command output as a variable. Now, type man bash, / (yes, just a slash), PS1, press <ENTER>. You can now press n to go to the next result. Skim through PROMPTING and type q to exit man. Now, navigate to http://stackexchange.com/ and search bash PS1. Understand how those two documentation sources differ.