Coordinate System
From Fmepedia
A coordinate system is a reference system for spatial data to be related to a particular space on the Earth's surface.
It is made up of a number of components such as projection (http://en.wikipedia.org/wiki/Map_projection), geoid (http://en.wikipedia.org/wiki/Geoid), datum (http://en.wikipedia.org/wiki/Datum) and units (http://en.wikipedia.org/wiki/Units_of_measurement).
Data needs to have a coordinate system associated to it, without a coordinate system, it will not be possible to combine the data with other sets. FME will gladly handle data without any coordinate system (also known as arbitrary coordinate system, because there are after all coordinates stored in the file). When working with FME, you generally only have to worry about the coordinate system if you want to reproject the data to another system or if FME fails to automatically recognize the correct coordinate system.
Setting a Coordinate System
Coordinate systems are defined in the navigation pane of Workbench. Here the user is reprojecting data from a Lat-Long coordinate system to a UTM zone. Both systems use a WGS84 datum so there will be no datum shift involved.
A coordinate system can be changed by double-clicking the setting or by right-clicking and choosing the edit parameter option:
