The lac operon in E coli is a set of four genes which work together to allow the bacterium to make use of lactose for energy. An Operon is a set of genes which are co-transcribed on a single mRNA, controlled from a common promoter. While operons are nearly always found in bacteria, eukaryotes (and viruses that infect eukaryotes) do have some sets of genes organized into operons.
lacZ and lacY is the business end of the lac operon. They are the only 2 genes necessary for lactose usage in the cell.
lacZ codes for beta-galactosidase, an enzyme that cleaves the lactose disaccharide into D-galactose and D-glucose. Most of know that glucose is an important source or energy via the glycolysis pathway, which is highly connected energy usage in the cell. Galactose is readily converted by an enzyme (galactose mutarotase) into glucose, making lactose an efficient source of energy.
lacY codes for a protein found in the cell membrane called lactose permease which pumps lactose into the cell from the outside using the proton gradient inside the cell for its motive force.
The lacA gene codes for an enzyme which transfers an acetyl group to galactose, which may prevent the buildup of galactose in the cell.
The way the operon works is more important than what it does. the lac operon was one of the first examples of transcription regulation every studied. lacI is not in the lac operon, but it is the single gene which controls whether the operon is copied to RNA from the chromosome. lacI is translated to the lac repressor protein (LacI), which binds to one of three sites in front of the lac operon.
lacI is a repressor gene - when it is active, it prevents the lac operon from being transcribed into RNA. LacI is a tetramer - four copies of the protein form a complex. LacI binds to allolactose, a derivative of lactose, when it is present in sufficient quantities, which then causes it to release itself from the chromosomal DNA, allowing transcription to occur and the lac genes may be expressed.