A closed system is one where no energy or matter can enter or leave. Inside it, energy can be transferred between stores, but the total amount of energy does not change. There is no net change to the total energy of the system.
Take a ball dropped inside a closed system that includes the ground and the air. At the start it has 100 J of gravitational potential energy. Part of the way down it has 40 J of gravitational potential energy and 60 J of kinetic energy, so the total is still 100 J. When the ball hits the ground and stops, the 100 J has been transferred to the thermal stores of the ball, the ground and the air. The total is still 100 J, but it is stored in a less useful way.
Another example is a hot block and a cold block in a closed, insulated container. Energy is transferred from the hot block to the cold block until they reach the same temperature. If the hot block loses 30 J, the cold block gains 30 J. The total energy is unchanged, although it is now spread out over more matter.
