System 1 thinking: Fast automatic thinking and rapid decisions. For example is when someone ask you 2 + 2, you don't think. You just reply quickly instantly. LLMs currently only have system 1 thinking.
System 2 thinking: Rational slow thinking to make complex decisions. For example when someone ask you 17 x 24 you think slowly and rationally to multiply. This kind of thinking is a major component we need for AGI. Current rumor from OpenAI about so called "Q*" algorithm could be something related to system 2 thinking (Just speculation at this point)