The main characteristics and key aspects of a networked power quality monitoring and analysis system are summarized. An economical and networked system framework is adopted. The optimal sitting and number of monitors are determined by solving an integer linear programming problem， through which economic optimization to construct the system is implemented. An improved algorithm of power quality event source identification is presented， in which extended cover matrix and extended direction matrix are generated with the definition of the virtual PQM. The source of power quality event can be identified accurately with simple matrix operation. A loop-network of five-bus power system and a simple radial distribution system are provided to validate the effectiveness of the two above algorithms respectively.