The beginnings of the University lie in the 13th Century when students fended for themselves in small groups based in inns and lodging houses. The Collegiate University evolved from these small groups.
The University is quite separate and distinct from the Colleges, each of which operates under its own royal charter. Each College is a self-governing body but has a number of connections with the University, both financial and academic.
Thus students and staff are members of both college and university for different purposes, whilst money, relating to education, flows in both directions for certain specific purposes. One cannot become a member of the University unless one is first accepted as a member of a College so that the members of the academic community who form the committees which govern the University are all members of one or other of the thirty eight Colleges, as well as being members of the University.
There is, however, one very important difference which is that the University receives a grant from public funds through the Higher Education Funding Council for England (HEFCE) which accounts for approximately 25% of its annual income. The Colleges, on the other hand, receive no such grant, although until 1998/99 they did receive a grant paid on a student number basis from the DfES.
Since then, a change in the method of funding student education in colleges has resulted in public funds being routed through the University and allocated to colleges on the basis of student numbers. Colleges also benefit indirectly from grants from public funds in that their members make use of University laboratories, libraries, museums, etc.
In broad terms, the University provides the facilities that are too large to be run economically by each College. For instance, it would be ludicrous to have thirty eight nuclear physics laboratories in Oxford, one for each College, so one is provided by the University and each College sends its students reading nuclear physics to that laboratory.