What is the difference between the system wide vimrc and a user's vimrc?

Question

I already have a .vimrc in my home dirrectory(~). but still I need to use set nocompatible in my vimrc for certain feature.

Answer 1

Note: This answer was rewritten after Jens pointed out that I totally screwed it up. My thanks to him for the correction.

It's in the docs. The system vimrc file (often found in /etc/vimrc or /etc/vim/vimrc) performs the system-wide default initializations. Following that, vim looks in 4 different places for user-specific initializations, one of which is ~/.vimrc (this is described in the next section of the docs). The first of those that exists is used, the others are ignored.