A template is a design for one or more posts, which is created in Oxygen and assigned based on post type, taxonomy, or some other variable.
The template system is what allows Oxygen to replace themes. For example, most Oxygen sites have a main "Catch All" template, which contains the site's header, a content area, and footer. Subsequent templates then inherit the main template so that they all have the same header and footer, but the content area can be changed.
Check out our templating overview documentation for a more in-depth look at Oxygen's templating system.