There are several units of length (distance) used in astronomy. In general, SI (System International) units are the basis so the fundamental unit of length is the SI unit of length, the metre (m). Of course standard SI prefixes can be added to the metre to form longer and shorter units such as adding centi to create centimetres (cm) or 0.01m or kilo to form kilometres (km) or 1000m.
Though centimetres, metres and kilometres are in common usage both in and out of astronomy they can be inconvienent units for astronomical distances. To overcome this astronomers have come up with three other units of linear measurement.
The shortest of the three astronomical units of measure is the astronomical unit, abbreviated AU. The astronomical unit is defined as the average distance between the Earth and the Sun or about km. This unit is useful for measuring distances between objects in the solar system. So the Earth is 1 AU from the Sun. Jupiter, at km from the Sun is about 5.2 AU. Once you go beyond the solar system, the AU stars to also become cumbersome, so it's usage is generally limited to objects within the solar system, or the measurement of solar system sized objects.
Despite what the name suggests, the light year, abbreviated ly, is a unit of linear measurement and not of time. The light year is the distance light travels in one year. In the near vacuum of space, the speed of light is constant at about 300 000 km/s so over one year light can travel about km! This makes 1 ly equal to km or 63 240 AU.
Even at the incredible speed of light, it takes light from Proxima Centauri, the closest star to our Sun about 4.2 years to reach us. This makes Proxima Centauri 4.2ly away in distance.
Though the light year is a convenient measure of interstellar distances, it is impossible to measure directly. To get around this astronomers developed the parsec, abbreviated pc. The parsec is related to the way that the distance to nearby stars is computed. If you take a picture of a nearby star at some point in time, then take a picture of that star six months later, you'll notice that the star will have appeared to "jump" slightly compared to the further background stars. This is due to parallax caused by the Earth's rotation about the Sun. Since the parsec is based on the parallax caused by the Earth's rotation around it's orbit, the definition of the parsec is the distance which 1 AU perpendicular to the observer's line of sight subtends an angle of one second of arc. In other words the parsec is one parallax second. The parsec works out to roughly 3.26 ly. 
- ↑ Freedman, Roger A. and Kaufmann III, William J., Universe, 8th ed.