Due to accelerating of electrical energy consumption and concerns about environmental pollutions, there is a growing interest in using Renewable Energy Resources (RERs). Moreover, application of Electric Vehicles (EVs) and Energy Storage Systems (E) is increasing in distribution systems. Inverters (DC/AC converters) are commonly used to connect RERs and E to the grid. Therefore, coincident with RERs and E, known as Distributed Energy Resources (DERs), penetration rate of inverters is growing in distribution systems. The capability of inverters in absorbing and injecting of reactive power from and into the grid causes these converters to be known as Multi-Functional Grid-Connected Inverters (MFGCIs) and could be used for providing ancillary services. Consequently, due to increasing penetration of Inverter-Based DERs and the importance of power quality in distribution systems, the ability of MFGCIs in providing different ancillary services is drawing Distribution System Operators’ (DISCOs) attention. Grid requirements standards for grid-connected DERs depend on their development and penetration levels are updated and revised. As a result, new grid codes allow DERs, especially small-scale DERs, to control their output reactive power to provide reactive power ancillary service. In this thesis, the main contribution is management of available capacity of grid-connected inverters to improve voltage profile and distribution system operation in different operation conditions, especially in confront with short-term voltage variations such as voltage sags and swells. In comparison with capacitor banks and On-Load Tap Changer (OLTC) transformers, inverter-based devices have fast and continuous response to distribution systems’ disturbances and by controlling of reactive power of these devices, distribution systems’ operation could be improved against voltage sags and swells. In this study, the structure of DERs and the way they connect to the grid are analyzed primarily. According to new grid codes, DERs should remain connected to the grid in fault conditions and ride-through short-term voltage variations which is known as Low Voltage Rid-Through (LVRT) and High Voltage Ride-through (HVRT) capabilities. Short-term voltage variations have different characteristics such as different magnitudes and different time durations caused by various sources. These characteristics and the sources of voltage variations are discussed exclusively. Afterwards, with the purpose of control of reactive power of inverter-based DERs aimed at improving distribution systems operation against voltage sags and swells, a two-level control strategy which consists of central and local control levels’ features is proposed. For implementation of the proposed control strategy, an equal dynamic model is considered for inverter-based DERs. Finally, by performing simulations on a low-voltage distribution test system, improving of smart distribution systems operation with a high penetration of inverter-based devices is illustrated and the successfulness of applied two-level control strategy is acknowledged. Key Words Grid-Connected Inverter, Voltage Sag and Swell, Control of Reactive Power, Distributed Energy Resources