Gross refers to the amount that you want to withdraw. Net is the amount that you will actually receive after taxes and penalties (10% if you are under 59 1/2).

For example, if you want $10000 (gross) distributed to you and you are in the 28% tax bracket and are retired, your net will be:

$10000 (gross amount) - $2800 (taxes) = $7200 (net distribution)

401k distributions.... they are REQUIRED to withhold 20% for federal tax... and some states require state tax be withheld as well, (AK, CA, DE, IO, KS, ME, MD, MA, NE, NC, OK, OR, VTand VA) Ca and OR can opt out...
So if you need a check for 10,000 best bet (this is what I tell our participants to do.. ) IS to write on amount to withdraw 10,000 NET.. we will gross up the distribution to make sure that you get the amount requested.
Basically gross is before tax... net after

My husband inherited his fathers 401k. He cashed it in and recieved all the funds minus the taxes due. Do we need to claim on this years taxes or do we have 2 years to invest?

You will get a 1099-R showing the gross distribution, and that must be reported on the tax return.

There is no option to delay tax by investing the proceeds.

I will be 71 1/2 in Dec 2010 and still working in my own business do I have to take out RMD