I understand the need (and desire) to separate content from design, but I don't understand the difference between themes and templates.

Can someone please explain?

Thanks!
~k3str3l

This is a frequent point of confusion. Take a look at the XOOPS wiki article ThemesVsTemplates. Hopefully this helps clear up your questions.

In XOOPS, themes and templates are 2 different things

Themes provide the basic structure and overall layout of the whole site. Unless heavily modified with Smarty tags, Style Sheets or PHP codes, themes dictate the common elements found in all pages of the site, e.g. site colors, location of site logo, banners, width of left column and presence of a header bar or footer bar.

Templates, on the other hand, control layout and design of page elements. Almost all page elements, unless rendered from the PHP script, are controlled by templates. These include both blocks, e.g. Main Menu, User Menu, Newest Members, Recent Topics and custom blocks, and module content, e.g. index page of News, layout of NewBB posts and layout of individual link information in MyLinks module.

Themes are modified and edited outside of the XOOPS Admin Control Panel, often using an HTML editor and FTP client. Templates are modified from within the XOOPS Admin Control Panel through the Templates Administration.

These two concepts provide flexibility in designing a XOOPS site. Themes provide gross control of the whole site, while templates provide fine manipulations of page details.

More information can be obtained from the XOOPS documentation site.