This is the category template and is used as an entry-way to each category.  You can display featured items, subcategory links, hardcoded links and pictures, and a variety of other items on this template.  In addition, you can use this single template as the main page for all of your categories, or you can copy this template and adjust it for each category.  All you have to do is specify the path to the template used in the category section of your admin menu.