It is located in a group of islands in the English Channel called the Channel Islands.  Out of the eight islands in the group, Guernsey is the second largest, and governs six of the other islands, excluding Jersey. 

Although the island is part of the British Isles, it is not governed by the British Government, it does however run very similarly to the U.K.  It does have its own money, including still having £1 notes.