Basically System is a special User, it effectively is your computers internal user so it kinda makes sense to use the hostname as name.
Take a look in Task Manager, go to the Details tabs and click PID ("Process ID") to sort the processes. The lowest few PIDs and the only process without a PID are all owned by SYSTEM and start at the earliest stages of the boot process. The Processes are run under the user "SYSTEM" and several are instances of ntoskrnl.exe - the Windows NT Kernel itself.
This Windows startup process article describes the general boot process and identifies the main components all of which are run as System.
Also worth mentioning the System user has special permissions so avoid modifying it or using it for none system tasks.