Group Policies define how a program, network resources and Operating System work for computers in an organization. They are basically configuration settings that are applied to the users and computers.
Group Policy Objects (GPO) is the collection of group policy settings. It is created using a Window utility known as Group Policy Snap In
Local GPOs are used to control policies on a local server running Windows 2000/2003 Server. On each Windows 2000/2003 server, a local GPO is stored. The local GPO is stored in the %systemroot%SYSTEM32GROUPPOLICY folder.