In a unitary system of government, the power rests with the central government and it may choose to delegate some powers to states or local governments, but may curtail them as it wishes. The United Kingdom and China are examples of unitary systems of government. Typically, there is only one level of government, the central level. Monarchies are forms of unitary systems, although democratic governments can also be unitary.
In a federal system of government, the central and local bodies govern the nation together. The states retain their sovereignty and the central government cannot take over the powers of the state. The United States and Germany are examples of federal systems of government. In a federal system, there are multiple levels including federal/central, state and local (say, county) levels of government. The division of powers, responsibilities and duties between the various levels of government is decided by the constitution.