Theme

Fundamentally, the WordPress Theme system is a way to “skin” your weblog. Yet, it is more than just a “skin.” Skinning your site implies that only the design is changed. WordPress Themes can provide much more control over the look and presentation of the material on your website.

A WordPress Theme is a collection of files that work together to produce a graphical interface with an underlying unifying design for a weblog. These files are called template files. A Theme modifies the way the site is displayed, without modifying the underlying software. Themes may include customized template files, image files (*.jpg, *.gif), style sheets (*.css), custom Pages, as well as any necessary code files (*.php). For an introduction to template files, see Stepping Into Templates.

Let’s say you write a lot about cheese and gadgets. Through the use of theWordPress Loop and template files, you can customize your Cheese category posts to look different from your Gadgets category posts. With this powerful control over what different pages and categories look like on your site, you are limited only by your imagination. For information on how to use different Themes for different categories or posts, see The Loop in Action and Category Templates.

From: http://codex.wordpress.org/Using_Themes