I once had a professor tell me that grounding was the "black magic" of the electrical world. I thought it was funny until I started hearing similar things over and over again. Grounding is a special subfield, and it is absolutely critical to do it right to ensure that a design will be safe. Grounding is underappreciated. Much of the time, a system doesn't need proper grounding to function under typical operating conditions. This can lead to pressure from non-electrical folks to minimize grounding designs and lower construction costs. It's usually only when something goes wrong that we realize how important a good grounding design is.
I think the confusion around grounding comes from the fact that the term itself, "grounding", can refer to a couple of different objectives. NEC Article 250 covers grounding and bonding, in all of their applications. What I believe is the best way to understand grounding is by separating it into 2 key categories: Equipment and System.
Equipment Grounding - Equipment grounding is the method by which an electrically continuous path is provided for circuits between their overcurrent protection device and their downstream point of termination. Equipment grounding is largely unrelated to making a physical connection to the earth (soil). Equipment grounding is all about making sure that an overcurrent protection device operates and de-energizes a circuit during a fault from a live, current-carrying conductor to a metallic case, metallic raceway, or piece of equipment.
NEC Table 250.122 is used to determine the size of an equipment grounding conductor based on the upstream overcurrent device trip rating. You might be thinking, "Why size off of the overcurrent trip rating and not something else, like the load current?". The reason is that the equipment grounding conductor is used to clear short circuits. When a fault occurs between a live wire and the equipment ground conductor (either directly or through a metallic pathway), the impedance of the circuit is drastically reduced and short circuit current will flow. In most cases, this current will be substantially higher than the operating current and will flow only for a short period of time limited by the overcurrent protection device. The upstream overcurrent protective device determines the withstand requirements of the equipment grounding conductor.
Table 250.122 isn't the end of the equipment grounding conductor sizing problem, though. For circuits with conductor sizes that have to be increased due to voltage drop or short circuit withstand requirements, the equipment grounding conductor is required to be upsized as well. The NEC is somewhat vague about these requirements.
Moreover, the NEC actually allows metallic raceways to be used as equipment grounding conductors if properly bonded. This approach is generally not advisable since conduit and tray raceways can easily become separated and make the system ungrounded.
In any case, the equipment grounding conductor never needs to be larger than the circuit's current-carrying conductors conductors.
The bottom prong in an electrical outlet is used for connection to the equipment grounding conductor. Some devices don't make use of this connection and have alternative ground protection means.
System Grounding - System grounding is the connection of an electrical system to the actual earth (soil). System grounding is achieved by connecting a neutral point of a single-phase, three-phase, or DC system to a grounding electrode through a grounding electrode conductor. The grounding electrode is a metal system, typically ground rods, ground rings, and structural metals, which comes into direct contact with the soil. The grounding electrode conductors is the electrical pathway from the neutral point to the grounding electrode. The grounding electrode conductor is typically installed at the point of supply. Many times, projects will require grounding electrodes to be designed to meet safe voltages under the event of an electrical fault with a current path through the earth per IEEE 80 and 81.
Grounding Electrode Conductors (GEC), the wiring connecting the neutral point to the ground electrode, are sized per NEC 250.66. The largest ungrounded conductor is the determinant of the GEC size, not the overcurrent protective device rating. The method here differs from the requirements of equipment grounding and NEC 250.122. This makes sense; An equipment grounding conductor is designed to ensure circuits are de-energized at the right time, but a GEC is only designed to ensure that there is a sufficiently low impedance connection to the soil.
Understand the Difference - System grounding and equipment grounding are separate design activities that go hand-in-hand. Equipment grounding ensures that a circuit is de-energized whenever a dangerous condition is present. Without an equipment grounding conductor, a live conductor, when damaged or loose from its termination, could energize its metal casing and leave an unsafe voltage waiting to harm somebody. System grounding serves different purposes: stabilizing voltages relative to the earth and providing a path for lightning strikes to dissipate.
The diagram below is a single-phase circuit with grounding. The green equipment grounding conductor is bonded at the neutral point from the source (secondary of the transformer) and bonded on the other end to the metal case around the load. Only the positive and negative conductors will carry current on a regular basis and are connected internally to the load. The equipment grounding conductor is only used to support the clearing of electrical faults. The brown grounding electrode conductor bonds to neutral point as well, but on the other end it bonds to the grounding electrode (a rod, pipe, or similar). The grounding electrode conductor does not follow the same route as the circuit and does not assist with clearing a fault.
Grounding is complicated. However, if you can remember the difference between system grounding and equipment grounding you're a long way on the right path.
A Single Phase Load with System and Equipment Grounding