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I'd like to know where the Transport Layer of the OSI model is running in a computer system. Is it part of the Operating System? Does it run in its own process or thread? How does it pass information up to other applications or down to other layers?
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The transport layer lies just above the network layer in the protocol stack. Whereas a transport-layer protocol provides logical communication between processes running on different hosts, a network-layer protocol provides logical communication between hosts. This distinction is subtle but important.
The devices that typically operate at the Transport layer are network devices, or gateways. The Transport layer of the TCP/IP model corresponds to the Transport layer (Layer 4) of the OSI model.
The transport layer exists between two devices or more, in his example a Client and Host Machine (virtual or real). Transport is invoked by the Operating System on both ends. Both the Client and Host Machine have instances of an Operating System and underly hardware managing transport.
TCP differentiates between connections using the IP address & TCP port 4-tuple. In other words, the port number is the transport-layer address.
I'd like to know where the Transport Layer of the OSI model is running in a computer system.
It isn't. The OSI model applies to the OSI protocol suite, which is defunct, and not running anywhere AFAICS. However TCP/IP has its own model, which also includes a transport layer. I will assume that's what you mean hereafter.
Is it part of the Operating System?
Yes.
Does it run in its own process or thread?
No, it runs as part of the operating system.
How does it pass information up to other applications
Via system calls, e.g. the Berkeley Sockets API, WinSock, etc.
or down to other layers?
Via internal kernel APIs.
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