Root folder (holds all site files)
index.html NOT a template, this is the page that opens first when your url is entered, often called the "home page"
all images reside here
all Templates reside here
all Spry assets (js and css files)
other css files reside here
Technically speaking, the Template (.dwt) file is a construction implement, not a display implement...you need it to build pages and to update the locked areas of pages based on it, but you do not SEE it when you look at a website. Keep your Templates within the site structure, for safekeeping, both online and on your local system. That way, if you have a failure on your local system, you will still have your pages and Templates available online for download.
Speaking generally, presentation site pages are html, shtml, php, asp, etc., etc., but not dwt. You will find it helpful to name your files (no word spaces in file names, please) with meaningful names (not page1.html, or default.html, but contact_us.html, about_us.html, etc.)
The Template file's first 'order of business' is to protect from inadvertent disaster the content that is repeated on multiple pages. You have set up such a Template, allowing editable areas. As you have seen, content in these editable areas may be different on every page, but such content is not contained in the Template.
The Template file's 'second order of business' is to make it possible for you to easily alter those portions of pages that remain identical...those portions that are within the protected areas. Change the Template, save the revised Template, and the changes propagate to all the pages you based on the Template. All at once. Unique content is not changed, just the protected content, when a Template is updated. Then, the revised pages (all of them) are synchronized with your online site, and updated pages are uploaded to the server.
Voila, the beauty of Templates.
Thank you Beth, for a very clear explanation! You answered my question and I can upload with confidence.