Templates define the frontend appearance of a page. It is also possible for the template creator to prepare the template so that the view in the backend WYSIWYG editor is similar in appearance to the frontend display. You can install as many templates as you like, making it possible to set a different template for each page, if you so desired.
You can find many ready-to-use templates in the template search of wbce.at, or create a template yourself - which is quite easy. Basically you just replace the static contents of an HTML page with some easy lines of PHP.
The simplest way to learn how a template is built is by looking into the source code of an existing template. You can have a look at the source code of the very basic template "Out of the blue", in which I have placed lots of comments to explain the template code.
You simply upload the zip file which you downloaded or created by yourself and click on "Install". You do not have to unpack the zip locally.
If you want to use the newly installed template...
Templates can be updated; if the template provider offers a new version and has increased the version number of the template, this dialogue is also used to update an existing template. But be careful, if you have made changes to the template or any template file, they will be overwritten during the update!
Similar to the de-installation of modules, with the same dangers and limitations.
The template provider can (but does not have to) give some additional information about a template, e.g., which block appears where, which blocks are mandantory and so on. Furthermore, you might find some information about the license terms of the template.