Module positions are placeholders in a template. They are used to identify positions in the template and to tell the Joomla! application where to place output from modules assigned to a particular position.
For example the module position "left" could be used in the left side of the template to display a site navigation menu. SO when a module is assigned to the "Left" position the module will be displayed there.
Ultimately it is up to the template designer to decide how to use a module position. Therefore not all templates always support or use all positions. If a module is assigned to a position that does not exist in a template, then the module will not be displayed. Common module positions are left, right, banner and top.