A Theme is a collection of files that work together to produce a graphical front-end interface with an underlying unifying design for a site. A WordPress Theme modifies the way the site is displayed and designed, without modifying the underlying core programming of WordPress. While some associate a WordPress Theme with "skinning" your site with a design, a WordPress Theme contains programming code that influences the design, changing it with each generated page view based upon the programming with PHP, WordPress template tags, WordPress conditional tags, and CSS.

Reference http://codex.wordpress.org/Glossary