template
A template is a PDF made once and reused as the background of new pages: your letterhead, a plain sheet, the terms you always attach at the end.
What the word means
The file is not redrawn, and it is not taken apart and rebuilt. It is laid down as it stands, exactly as its maker left it, and the new text is written over it.
That matters because a letterhead is usually somebody else's work: a designer's file, a printer's proof. Redrawing it would mean rebuilding it, and getting it slightly wrong. Laying it down keeps it to the millimetre.
What it does on a real document
The first page carries the headed sheet, the pages after it carry the plain one, and the terms are attached at the end unchanged. The text of the letter is written on top of all of it.
One imported page can be laid down as often as you like, and it is stored once in the file however many times it appears. A letter of a hundred pages on headed paper is not a hundred copies of the letterhead.
Where it comes from, and why
Printing on pre-printed paper is older than the computer. A firm bought a box of headed sheets and fed them through the machine. Doing it inside the file is the same idea, with the paper included.
The format was built for it from the start: a piece of drawing can be defined once and placed anywhere, any number of times. Bringing in a page from another document is that same mechanism, used on a whole page at once.
See it on a finished document
A pack built on three supplied templates An invoice laid on a letterhead template