Within the context of WordPress Theme-ing, the term 'template' refers to PHP files used to display content.
.php files containing code specialized for a particular purpose-- to display a list of categories or to display an individual post. Many of these files are loaded automagically by the WordPress core according to page context and file name. For example, WordPress will load
single.php to display a content for a single post. Other templates can be created and manually assigned from the edit screens of certain post types such as "Pages".