I am new to TeamCity and currently installing it.
It was asking whether I want to be running the server under a "user account" or "the SYSTEM account" / running the agent under a "user account" or "the SYSTEM account".
I assumed that since my version control (clearcase) is configured to my employee id, I should select user account.
Is my assumption correct? When should either the SYSTEM account or a user account be used? What is the difference between them?
What you're talking about is allowing TeamCity to run as LocalSystem vs a specified user account (local or in ActiveDirectory). LocalSystem is highly privileged (see this article).
If you are interested in following the principle of least privelege, you should create a user account. If you're running TeamCity on your local workstation, LocalSystem is probably ok.
The same advice applies to the build agent.
The main difference for you as the user can be connection of the TeamCity to some remote repositories. I.e., you have an SSH authentication with keys configured in your user account, to access a git
repository. From the user account you will be able to configure it almost out-of-box. But it will take time to configure authentication for system account.
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