Bernoulli's equation can be applied to a system where a large pipe splits into two smaller pipes, but energy conservation is affected by losses such as friction. The main assumptions in deriving Bernoulli's equation include constant mass flow rate, frictionless conditions, and irrotational flow. Energy is not conserved in this context due to these losses, which occur during flow. The fluid type also influences the applicability of the assumptions, particularly regarding incompressibility for liquids versus gases. Understanding these principles is crucial for correctly applying Bernoulli's equation in fluid dynamics.