Another way to think of a house is as a school within a school. The essence of the house system is that it provides structure, socialization and discipline for students. Private school houses have their own traditions and rituals which are meant to foster stability and respect.
Membership in a house is determined by some formula which has probably been used for decades. Typically houses are balanced by age level and/or grade. Houses are widely used in intramural sports to foster healthy competition among the students. The house with the most points at the end of the academic year usually wins some sort of trophy or prize.
Find more terms in the Private School Glossary.