All you need to know:
The two-hybrid system is a molecular genetic tool which facilitates the study of protein-protein interactions. If your two proteins interact, then a reporter gene (e.g. gal1-lacZ - the beta-galactosidase gene) is transcriptionally activated. And you get a colour reaction on specific media. You can use this to (1) study the interaction between two proteins which you expect to interact and/or (2) find proteins (prey) which interact with a protein you have already (bait).
If you want to know more:
The intact Gal4 protein is a transcriptional activator which has two separate functions (a DNA-binding domain and an activating domain).
