It's a bit of both...
ZFS is a file system type that can be applied to a raw device to create
a filesystem, however to get that you need to put the raw device into a
zfs pool which is what the software part does.
It's build directly into the kernel so operates in kernel space, but
also has a lot of dynamic qualities such as compression that can be
enabled and disabled at will, good if you've got a filesystem with a lot
of logs in it etc.
The good thing is that there is no such concept as inodes in zfs so you
can have as many files as you want without worrying about hitting inodes
maximums.
Mike