In the Tezos seed protocol (the first production system), users had the choice of creating two different types of accounts: manager (AKA implicit) and originated addresses.
A manager address is the address created for the wallet's main account.
It's called implicit because it's obligatory and will always be present in all Tezos accounts.
Manager addresses uniquely identify the wallet's main account.
In the first Tezos protocol, implicit addresses could not be used for delegation.
Manager addresses could also be used for baking.
Your manager address could be registered as a baker, provided it had at least one roll balance, then you could delegate to yourself using your manager address.
The procedure was very simple. After the implicit address was registered as a baker, you'd simply delegate your main account to itself.
An originated address, on the other hand, is generated by the account manager. It is derived from the implicit address. Originated addresses could delegate their balance to a baking service.
The term "originated" is translated from French, meaning the address was created from (found its origins in) a manager address. In my opinion "generated address" would better reflect its function.
Originated addresses cannot act as bakers. Only manager addresses can be registered to bake.
To differentiate between the two classes of addresses, they were given different prefixes.
Implicit, or manager, addresses have a TZ prefix.
Originated addresses have a KT prefix.
The idea was to easily distinguish manager addresses from originated addresses.
Privacy was also an initial concern.
By creating different addresses for account management and baking, XTZ could be delegated to bakers without revealing the account's main address and its balance.
Another advantage of decoupling the account's main address from delegation addresses is that you could create as many originated accounts as you wished.
A manager could then delegate each different KT address to a different baking service if they chose to.
Meanwhile, an implicit TZ address was originally unable to delegate its XTZ token balance. The user would have to create a new KT account based on the manager account, then transfer the desired balance there. The new KT account could then delegate its balance to a baking service.
You'll probably be surprised to know that almost everything we explained about originated addresses is no longer used.
Tezos no longer restricts manager (TZ) addresses from baking.
Meanwhile, KT addresses have been deprecated.
This happened after the ...
In late 2019, the Babylon amendment changed major parts of the Tezos system.
TZ manager addresses were now to be used for everything and existing KT addresses were to be handled by a smart contract.
KT addresses today are similar to ERC20 Ethereum-based tokens that run on top of the Ethereum blockchain. This was done to allow everyone to move their funds out of their KT addresses.
Today, TZ addresses can delegate funds to bakers, and KT addresses aren't used anymore. In fact, the latest Galleon wallets no longer feature KT account generation in the main user interface.
If you still have a KT address and its balance is delegated somewhere, then don't worry - you'll be fine. KT addresses are still valid. You can even have your manager account delegated to one bakery and your legacy KT account delegated elsewhere at the same time.
While the distinction between manager and originated addresses may seem confusing at first, it reflects Tezos' sophisticated design. The goal was to give users as much flexibility as possible.
There is a recurring pattern in Tezos' architecture: it decouples components so that different parts perform different tasks without interfering with one another.
Having a separated class of addresses for delegation was meant to separate the management role from the delegation role.
Since other cryptocurrencies evolved in the direction of staking directly from the main account, Tezos followed suit and simplified the system to use the manager address for everything.
If you're just starting out, then forget about KT addresses and use your main TZ address for everything. KT addresses may even be phased out in the future.