The theme determines the appearance of your e-store including coloring, block positions, fonts, icons, e-mail templates. Each type of the mentioned elements is described in the separate files. The color decoration is specified in the .css files, block positions are described in .xml and .tpl files, etc.
Sometimes, the words template and style are misused instead of the word theme. Unfortunately, it is not correct, because the theme is a wider definition and includes styles, templates, layouts, fonts and other necessary elements.
See more information about the theme structure here.