From The Course Books
In the A.Y. System, the year is expressed as the Age followed by the number of years that have passed in that Age. So for example 6500 would be the 500th year of the Sixth Age. This can be confusing since it appears to count the number of years since the Alliance began, but would actually be the 5500th year of the Alliance. However, since the Golden Age actually lasted for 998 years, it would be the 5498th year.
A year is defined as a Dimensional Standard Year, lasting exactly 365 days. Most inhabited planets have a solar year of roughly 365 days, with a day lasting roughly 24 hours. On average, this system works for establishing dates, with some local variations. For years it is mostly accurate.
An Age is 1000 Dimensional Standard Years. Ages count from 0 to 999, so the exact rear of the age can always be expressed as a 3 digit number. Hence, Year 1000 of the Fifth Age is actually Year 0 of the Sixth Age, Year 1 is technically the second year.
A.Y. dates are always given as A.Y. (Year), unlike the B.G.A. System in which the year can be written on either side of 'B.G.A.'
Dates are written as (Age) (Year of Age), so A.Y. 10 is actually Year 0 of the First Age.
Because of this confusion, dates can be written either by the abreviated A.Y. (Age) (Year of Age), or by the more formal Year (Year of Age) of the (Age) Age.
Example: A.Y. 6902 and Year 902 of the Sixth Age are describing the same year.
Establishment of the A.Y. System
Prior to that, all nations used their own independant calendars, making it very difficult to synchronize dates. A universal calendar, Sagen felt, was an important step to bringing the fractured alliance back together.