Simply put, Joomla Templates act like a “skin” or “theme” that is used to wrap around your website so that it has a particular look. So a single website can be themed or skinned using a Joomla Template to provide many completely different looks.

Joomla separates your websites content (images, text, multimedia) from the way it is presented (frontend). This is a key factor that allows one website to have many “faces”. If you need to re-skin your website, all you have to do is change the Joomla template … and voila! your website has a whole new look. This will not affect your content in any which way.

To make life simple, joomla has host of features that allow you to install and change templates on the fly from the Joomla Administration panel. The joomla template installer allows you to upload your joomla template from your hard drive onto the website from the installer webpage using just a few clicks.

Once your template is installed, the template manager is used to activate which template is used on the front end. A template can be set as the default template for the website, in which case every page of the site has the same look and feel. To make things flexible, several templates can also be assigned to individual pages. This allows one to set a unique look for each page.

Source: http://www.mozami.net/blog/2006/08/joomla-cms-and-joomla-templates-faq