Template picker gives content creators a list of templates to choose from as they create nodes. The templates in this list are auto-discovered in your site's default theme through a simple naming convention:
Template Picker also supports entities. Entity templates can be discovered and picked when added to your site's default theme, and named with the following naming convention:
The ability to pick templates is used to assign page templates in Wordpress, and this module is a port of similar functionality to Drupal.
Template Picker was discussed on Episode 96 of the Modules Unravelled Podcast.
If you are looking for this functionality in Drupal 6, check out the Custom Node Template module.