Template picker gives content creators a list of templates to choose from as they create nodes. The templates in this list are auto-discovered in your site's default theme through a simple naming convention:
Template Picker also supports entities. Entity templates can be discovered and picked when added to your site's default theme, and named with the following naming convention:
The ability to pick templates is used to assign page templates in Wordpress, and this module is a port of similar functionality to Drupal.
If you are looking for this functionality in Drupal 6, check out the Custom Node Template module.