A template is a set of instructions telling your website how it should look. By changing the instructions we change the appearance without changing the content. So the words, music, images, etc, are not related to the design. This means you can change the design without changing the content, and you can change the content without needing help from your designer.
Using templates puts you in control!
Templates have a number of features:
The first is the colour scheme, and images that make the 'look and feel' of your site. You may want a clean professional image. You may want something that appeals to kids, or to people with a particular interest. Or you may want something that reflects your own tastes, even if other people think it's ugly. The great thing about using templates is that if you change your mind it's quite easy to switch to another one.
The second feature is the layout. Do you want menus on the left, or at the top? How about at the bottom of the page? Do you want a wide page, or several columns? How about an image across the top, or in one corner?
These things are all decided by the template and they're not difficult to make. I usually modify an existing template, just to make life easier, but you may decide to hire a designer to create something that is unique to you.
The final appearance of your site will also be influenced by the functionalities that you decide to add. If you want to include advertising banners, or a slideshow then that will affect how your site looks. You may choose to display a random image from your gallery, add an event calendar, embed video, include a flash message, or have a moving 'ticker' which displays important information for your clients. These functionalities are created using software, so they're not considered to be part of design.
A good template makes it possible to add all or any functionalties you like. But you may also decide to turn those functions off for some or all pages. You may want a slideshow on your "news" page, but not on your customer support page. You may want to display your calendar on your front page, but not alongside your product information. This is why design is separated from function. Good design makes functionality possible, but you don't need functionality to have good design.
Here are a few examples of different templates. Click to see larger images.