Feudalism
Feudalism was a social, political, and economic system that dominated all aspects of medieval life.  The economic portion of feudalism was centered around the lord's estates or manor, and is called manorialism.  A lord's manor would include peasant villages, a church, farm land, a mill, and the lord's castle or manor house. 

Manors were self sufficient; all economic activity occurred on the manor. This meant that little to no trade occurred during this time period.  Most of the peasants during the Middle Ages were serfs.  Serfs were generally farmers who were tied to the land.  They were not slaves because they could not be bought or sold, but they could not readily leave the manor either.  Serfs were given land to farm in exchange for service to their lord.  This service usually involved working the lord's fields, maintaining roads and the manor, and providing military service in times of war.  Serfs paid taxes to their lord in the form of crops.  This is also how the paid the fee to use the manor's mill or other services. 

The lords had responsibilities also under this system.  In return for the service and fees paid by the peasants, they provided land and protection to them.  Lords also had to pay fees and give service to high lords and the king.  Feudalism affected all levels of society.

The Crusades
Toward the end of the European Middle Ages, the Catholic Church launched a series of Holy Wars against the Muslims in the Middle East.  These wars were known as the Crusades, and while their original goals were not achieved, they nevertheless, had long reaching effects.  A major result of the Crusades, was an increase in trade.  European interest in goods from the east was stimulated by returning Crusaders who brought back many things. As the Crusades ended, ships that were once used to carry soldiers to the Middle East, now carried trade goods.  Merchants from rich Italian city states, such as Venice and Florence, dominated this trade.  Goods from the Middle East would arrive in Venice, before following newly established trade routes to the rest of Europe.  Along these new trade routes, trade fairs were established in towns with larger populations, or at major crossroads.  Over time, merchants and craftsman settled in these towns, and some grew to be cities of several thousand people.  This fundamentally altered the way people lived in Europe, and marked the beginning of the end of feudalism as serfs began to pay their feudal obligations with cash instead of service.