The concept behind thread count is simple; it is just a measure of how many threads are used in a particular area of the fabric. Threads run in two different directions; warp (length) and weft (width). If you add the number of threads in the warp to the number of threads in the weft, this will give you thread count.
There are two standard systems of thread count. Imperial, which originated from Europe and is used by the majority of the world and Metric, which is mainly used in Australia. Imperial thread count is calculated in a square inch, where the Metric version is based in 10sq.cm (3.16cm x 3.16cm).
Thread count is not an indicator of the quality of fabric, rather a description of what the fabric should feel like, and an indication of how tightly the fabric has been woven.