A Moodle theme is a pre-designed user "view" (interface) that can be changed by the site administrator, teacher, or student. While robust, it does not affect how Moodle functions, just how it looks. Moodle comes with a standard set of themes and there is a large free library available to download.
Themes may be selected at site level, course level and/or user level as long as the Moodle site has been configured to allow changes at these levels.
Steps to change a theme
See Theme selector to see how to change your theme
Themes in standard install
Themes included in Moodle 2.0 are Arialist, Brick, Formal white, Fusion, Magazine, Nimble, Nonzero, Overlay, Sky High, Splash. See Standard themes for screen shots of each.