SharePoint site templates are pre-built definitions designed around a particular business need. You can use these templates as they are to create your own SharePoint site and then customize the site as much as you like. SharePoint
2010 comes bundled with a lot of default site templates, like Team Site, Blog site, and Group Work Site as shown here.
In addition to the default templates, you can create your own site template based on a site you’ve created and customized in SharePoint. When you save your site as a template, you create a Web Solution Package, or WSP. A WSP
is a CAB file with the solution manifest. The solution you create gets stored in the Solution Gallery for the SharePoint site collection. From there, you can download a copy of the solution or activate it on the server. When you save your SharePoint site as
a template, you’re saving the overall framework of the site – its lists and libraries, views and forms, and workflows. In addition to these components, you can include the contents of the site in the template, for example, the documents stored in the document
libraries. This could be useful to provide sample content for users to get started with. Keep in mind that this could also increase the size of your template beyond the default 50 MB site template limit.
Thanks Praveen - good resource!